Wealth Sense

After the T4: Using Tax Season Insights to Strengthen Your Wealth Plan

Fri, 17 Apr 2026 15:46:00 GMT

Your tax return is more than a receipt. In the right hands, it is a diagnostic tool that reveals the strengths and risks of your wealth plan, as well as its tax deficiencies.

Most Canadians complete their tax filing in April, feel relieved when they submit the return, and move on. That is a missed opportunity. The weeks immediately following tax season represent one of the most productive planning windows of the year because you now have verifiable data about what actually happened in 2025. You know how much RRSP contribution room you carried forward, how much capital gains income you realized, how your dividend income was structured, and whether your account allocation is working as efficiently as it should.

For affluent professionals, entrepreneurs, and business owners, these details are not administrative trivia. They are the foundation of a more tax-efficient, better-protected wealth strategy. Your tax return tells you what happened. A strategic post-tax review tells you what to do next to protect what you have built and ensure it endures beyond your lifetime.

Learn more about me and my services here .

RRSP room carryforward: the deferred asset

Your Notice of Assessment shows your available RRSP contribution room. For many high-income Canadians, this number has been accumulating for years. Unused RRSP room is not just a missed deduction but a deferred tax shelter that should be deployed strategically.

RRSP contributions are most valuable when your marginal tax rate is high. If you are preparing to sell your company, nearing peak earning years, or expecting a significant payout, accelerating RRSP contributions now can generate substantial tax savings. The key is timing those contributions to coincide with high-income years rather than using the room passively over decades.

Capital gains and LCGE planning for business owners

If your 2025 tax return showed capital gains income, you need to understand how this affects your future planning. The lifetime capital gains exemption, now at $1.25 million for qualifying small business shares as of June 25, 2024, is one of the most powerful wealth preservation tools for Canadian entrepreneurs. For a couple who both own shares, that shelters over $2.5 million in tax-free gains.

To qualify, your shares must meet specific tests, including: the company must be a small business corporation at the time of sale, you must have held shares for at least 24 months, and more than 50 percent of the assets must be used in an active business. These tests are strict. Your post-tax review should include a formal LCGE eligibility assessment to ensure you are positioned correctly for an eventual exit. Lastly, the capital gains inclusion rate remains at 50 percent. The proposed increase to 66.67 percent was cancelled in March 2025, providing business owners with stable planning certainty.

Account structure: are you holding the right income in the right place?

Your tax return shows how your investment income was taxed, such as interest, dividends, and capital gains. Each receives different tax treatment, and where you hold those investments matters significantly. Interest income is taxed at your full marginal rate, making it the least tax-efficient. If you hold bonds or GICs in non-registered accounts while your TFSA or RRSP sits underutilized, you are paying more tax than necessary. Interest-generating investments should be inside registered accounts whenever possible.

On the other hand, Canadian dividends benefit from the dividend tax credit. Capital gains are only 50 percent taxable. Both are more tax-efficient in non-registered accounts than interest. A post-tax review should assess whether your account structure aligns with the income your investments generate. As your wealth grows and your income sources shift, your account structure needs to adapt. The data on your tax return tells you whether that shift is happening or whether inefficiencies are building.

Insurance and estate planning: the protection layer

Tax season is also an ideal time to review your protection planning. Your 2025 income determines how much life insurance, disability coverage, and critical illness protection you need. If your income has increased, your coverage may no longer be adequate. In addition, if your business value has grown, your estate liquidity may be insufficient.

For business owners, permanent life insurance can provide estate liquidity to pay taxes on death and equalize inheritances when some children are active in the business, and others are not. These strategies require coordination between your investment plan, tax situation, and insurance coverage. As a dual-licensed advisor holder with both investment and insurance licenses, I integrate insurance solutions directly into your wealth plan rather than treating them as separate products managed by separate advisors.

READ the Retirement Blueprint, Volume 2: Protecting Wealth

This article provides an overview of how tax season insights inform better planning, but the comprehensive wealth protection requires considerably more depth. I have published The Retirement Blueprint, Volume 2: Protecting Wealth , a guide to insurance strategies, tax optimization, estate structures, and legacy planning for Canadians who have built substantial wealth.

Download The Retirement Blueprint, Vol. 2: Protecting Wealth HERE
If you would like to discuss what your 2025 tax return reveals about your wealth plan, I invite you to book a post-tax planning consultation. The best time to strengthen your protection strategy is before you need it.
Request a complimentary coverage review: If you are a client, thank you for taking the time to read this and I look forward to our next conversation. Please feel free to share this with your friends and family who may be in need of another viewpoint. Book your appointment here.

Source

McBride, Steve. The Retirement Blueprint: Protecting What You Have Built . McBride Wealth Management / Ventum Financial Corp., 2025.

Government of Canada. "Government of Canada announces deferral in implementation of change to capital gains inclusion rate." Department of Finance Canada, January 31, 2025. https://www.canada.ca/en/department-finance/news/2025/01/government-of-canada-announces-deferral-in-implementation-of-change-to-capital-gains-inclusion-rate.html

Canada Revenue Agency. "What's new for capital gains for 2024." Government of Canada, February 5, 2026. https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains/whats-new-capital-gains.html

Investment Executive. "Essential tax numbers: Updated for 2026." Investment Executive, November 25, 2025. https://www.investmentexecutive.com/uncategorized/essential-tax-numbers-updated-for-2026/

WOWA. "Canada Capital Gains Tax Calculator 2026." WOWA.ca, February 16, 2026. https://wowa.ca/calculators/capital-gain-tax

Ventum Financial Corp. www.ventumfinancial.com

Vancouver Office

2500 - 733 Seymour Street

Vancouver, BC V6B 0S6

Ph: 604-664-2900 | Fax: 604-664-2666

For a complete list of branch offices and contact information, please visit our website.

Participants of all Canadian Marketplaces. Members: Canadian Investment Regulatory Organization, Canadian Investor Protection Fund and AdvantageBC International Business Centre - Vancouver. Estimates and projections contained herein are our own and are based on assumptions which. we believe to be reasonable. Information presented herein, while obtained from sources we believe to be reliable, is not guaranteed either as to accuracy or completeness, nor in providing it does Ventum Financial Corp. assume any responsibility or liability. This information is given as of the date appearing on this report, and Ventum Financial Corp. assumes no obligation to update the information or advise on further developments relating to securities. Ventum Financial Corp. and its affiliates, as well as their respective partners, directors, shareholders, and employees may have a position in the securities mentioned herein and may make purchases and/or sales from time to time. Ventum Financial Corp. may act, or may have acted in the past, as a financial advisor, fiscal agent or underwriter for certain of the companies mentioned herein and may receive, or may have received, a remuneration for their services from those companies. This report is not to be construed as an offer to sell, or the solicitation of an offer to buy, securities and is intended for distribution only in those jurisdictions where Ventum Financial Corp. is registered as an advisor or a dealer in securities. Any distribution or dissemination of this report in any other jurisdiction is strictly prohibited.

For further disclosure information, reader is referred to the disclosure section of our website.

Weekly Economics Report - April 10 2026

Sat, 11 Apr 2026 14:31:14 GMT

US laboUr market posts largest jobs gain in 15 months, but clouds brewing from Iran war

WASHINGTON, April 3 (Reuters) - U.S. job growth rebounded more than expected in March as a strike by healthcare workers ended and temperatures warmed up, but downside risks for the labor market are mounting from a war with Iran that has no clear end in sight.

The biggest increase in nonfarm payrolls in 15 months, and also the largest since President Donald Trump returned to the White House, followed a sharp decline in February, the Labor Department's closely watched employment report showed on Friday.

Nonetheless, the rebound exaggerates the labor market's health. The average workweek was shorter last month and annual wage growth increased at its slowest pace in nearly five years.

While the unemployment rate fell to 4.3% from 4.4% in February, that was because 396,000 people dropped out of the labor force, more than offsetting weakness in household employment. The labor force participation rate fell below 62% for the first time since the COVID-19 pandemic.

Economists said March was too early to capture the fallout from the Middle East conflict.

"This is an on-the-one hand, on-the-other kind of a job market," said Bill Adams, chief U.S. economist at Fifth Third Commercial Bank. "This report tells us next to nothing about the Iran war's impact on the job market."

Nonfarm payrolls increased by 178,000 jobs last month, the most since December 2024, after a downwardly revised 133,000 drop in February, the Labor Department's Bureau of Labor Statistics said. Economists polled by Reuters had forecast payrolls rising by 60,000 jobs after a previously reported 92,000 decrease in February.

Estimates ranged from a loss of 25,000 positions to a gain of 125,000 jobs. The economy has experienced months of positive and negative payrolls since May last year, with volatility intensifying this year. Economists attributed some of the choppiness to the birth-death model, which the government uses to estimate how many jobs were gained or lost because of companies opening or closing in a given month.

Others blamed uncertainty related to Trump's sweeping import tariffs, which have since been struck down by the U.S. Supreme Court. Trump, however, responded by imposing a global tariff for up to 150 days.

Job growth averaged 68,000 per month in the first quarter, which economists said was a better reflection of the labor market's health. Data from the BLS this week showed job openings decreased by the most in nearly 1-1/2 years in February, pointing to slipping labor demand.

March's employment report likely has no impact on the interest rate outlook, with the effects of supply chain disruptions from the conflict still to work their way through the economy. The odds of a rate cut this year have greatly diminished. The Federal Reserve left its benchmark overnight interest rate in the 3.50% to 3.75% range last month.

U.S. Treasury yields rose on the report. The stock market was closed for the Good Friday holiday.

"Since May 2025, each month of positive job growth has been followed by a month of negative growth, a pattern that likely reflects the tariff uncertainty that began in April," said Olu Sonola, head of U.S. economics at Fitch Ratings. "The war in Iran now threatens to add to that choppiness, especially if the conflict drags on and the uncertainty impulse intensifies. For the Fed, wait-and-see is the only sensible option at this point."

HEALTHCARE DOMINATES JOB GROWTH

The war, now in its second month, has boosted global oil prices by more than 50%. Trump on Wednesday vowed more aggressive strikes on Iran.

The healthcare sector dominated the nearly broad increase in employment, adding 76,000 positions as 35,000 employees at doctors' offices returned to work following a strike. Employment also increased at hospitals.

Construction employment increased by 26,000 jobs. Transportation and warehousing payrolls advanced by 21,000 positions, though employment in the sector remained down by 139,000 since peaking in February 2025.

There were further gains in social assistance employment. Manufacturing, which the Trump administration is trying to shore up with import duties, saw payrolls increasing by 15,000 jobs - the biggest gain since November 2023. Still factory payrolls are down 82,000 since January 2025.

Leisure and hospitality employment rebounded 44,000, with the bulk of the increase at restaurants and bars. Federal government employment declined by another 18,000 jobs, and is down 355,000, or 11.8% since peaking in October 2024. The White House embarked on an unprecedented campaign to slash the size of federal agencies, which Trump argued were bloated. The federal government is, however, now actively recruiting workers.

The financial activities sector shed more workers. There were signs of the adoption of artificial intelligence leading to job losses in the professional and business services sector, where positions for computer systems design and related services dropped by 13,200.

The share of industries reporting job growth increased to 56.8% from 49.2% in February. But the workweek eased to 34.2 hours from 34.3 hours. A single month does not make a trend, but businesses will first reduce hours before resorting to layoffs.

Average hourly earnings rose 0.2% after increasing 0.4% in February. Wages increased 3.5% year-on-year, the smallest gain since May 2021, after advancing 3.8% in February. With the national average retail gasoline price topping $4 a gallon this week for the first time in more than three years, households' purchasing power will be squeezed. The war wiped about $3.2 trillion from the stock market in March.

Details of the household survey, from which the unemployment rate is calculated, were mostly weak. The survey response rate, however, dropped to an all-time low of 63.9% from 65.9% in February.

Household employment decreased by 64,000 and more people worked part-time for economic reasons. The labor force participation rate dropped to 61.9%, declining below 62% for the first time in nearly 4-1/2 years in part as immigration flows ebb and the workforce ages.

Economists estimated the jobless rate would have risen to 4.5% were it not for the decline in the participation rate. A reduced labor force now means the economy needs to create fewer than 50,000 jobs per month to keep up with growth in the working-age population.

"The labor force is structurally tighter now than it was before COVID," said Gus Faucher, chief economist at PNC Financial Services. "The decline in the labor force participation rate since the pandemic recovery is coming from an aging workforce, and more recently the crackdown on immigration."

US service sector cools in March; price paid measure highest in 3-1/2 years

WASHINGTON, April 6 (Reuters) - U.S. services sector growth slowed in March, while prices paid by businesses for inputs climbed to near a 3-1/2-year high, an early sign that the prolonged war with Iran was boosting inflation pressures.

The Institute for Supply Management said on Monday its nonmanufacturing purchasing managers index slipped to 54.0 last month from 56.1 in February. Economists polled by Reuters had forecast the services PMI dipping to 54.9. A reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of U.S. economic activity.

The U.S.-Israel conflict with Iran, now in its second month, has boosted global oil prices by more than 50%. The national average retail gasoline price has jumped above $4 a gallon for the first time in more than three years. Economists expect the inflation hit from the war would show in the March Consumer Price Index report scheduled to be released on Friday.

Producer prices already increased in February in anticipation of the escalation in the Middle East conflict.

The ISM survey's measure of prices paid by businesses for inputs soared to 70.7, the highest reading since October 2022, from 63.0 in February.

This gauge had remained elevated, with businesses blaming rising costs from President Donald Trump's broad tariffs, which have since been struck down by the U.S. Supreme Court. But Trump responded by imposing a global tariff for up to 150 days.

The survey's measure of supplier deliveries increased to 56.2 from 53.9 in February. A reading above 50 percent indicates slower deliveries. That mirrored a lengthening in delivery times at factories, with manufacturers of food, beverages and tobacco products citing "container delays."

The anticipated inflation fallout from the conflict has greatly diminished the odds of an interest rate cut this year. The Federal Reserve left its benchmark overnight interest rate in the 3.50% to 3.75% range last month.

The survey's measure of new orders increased to a two-year high of 60.6 from 58.6 in February. But export order growth slowed considerably and the increase in unfinished work moderated.

Services sector employment contracted, with the jobs measure dropping to the lowest level since December 2023. That is at odds with a sharp rebound in job growth in March, which was driven by a 143,000 increase in private service-providing payrolls. The ISM employment gauge has, however, not been a good predictor of private services payrolls in the Labor Department's employment report.

China services activity growth cools in March, private PMI shows

BEIJING, April 3 (Reuters) - Growth in China's services activity slowed in March from February's 33-month high, as softer demand and a decline in overseas orders weighed on momentum, a private-sector survey showed on Friday.

The RatingDog China General Services purchasing managers' index, compiled by S&P Global, fell to 52.1 in March from 56.7 in February, remaining above the 50-point mark that separates expansion from contraction.

The reading contrasted with an official survey released earlier this week showing services activity edged up in March, partly because the two surveys cover different samples.

China's economy started the year on a firmer footing with a surge in exports driven by AI-related technology demand, quickening industrial output, and a rebound in retail sales and investment.

But escalating conflict in the Middle East has rattled global trade and energy markets, clouding the outlook for the world's second-largest economy.

China remains relatively well-positioned to endure short-term disruptions from the Iran conflict, said Lynn Song, chief economist of Greater China at ING, in a research note this week, adding "but if higher energy prices and shipping disruptions persist or worsen, we could see pressure build in the months ahead."

New business expanded at the slowest pace since April 2025, while new export orders contracted in March after rising the previous month.

Services firms cut staffing at the fastest pace in six months, citing resignations, retirements, unfilled vacancies and restructuring.

Average input costs in the services sector continued to rise in March, with the sub-index at 50.7 versus 50.9 in February, driven by higher fuel, raw materials and labour costs.

The modest increase in cost pressures allowed service providers to lower prices to help support sales.

Business sentiment for the year ahead remained positive, though it eased slightly from February, the survey showed.

The composite output index, which includes both manufacturing and services activity, fell to 51.5 in March from 55.4 in February.

© 2018-2023 Refinitiv. All rights reserved. Republication or redistribution of Refinitiv content, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. Refinitiv and the Refinitiv logo are trademarks of Refinitiv and its affiliated companies .Ventum Financial Corp. www.ventumfinancial.com

Ventum Financial Corp. www.ventumfinancial.com

Vancouver Office

2500 - 733 Seymour Street

Vancouver, BC V6B 0S6

Ph: 604-664-2900 | Fax: 604-664-2666

For a complete list of branch offices and contact information, please visit our website.

For further disclosure information, reader is referred to the disclosure section of our website.

The Missing Link in Retirement Planning: Disability and Critical Illness Coverage

Thu, 12 Mar 2026 18:49:49 GMT

Most retirement plans account for markets, taxes, and longevity. Few account for what happens to your wealth if your health gives out first.

You have spent years building wealth, including maximizing contributions, staying disciplined through market cycles, and making careful decisions about when and how to deploy capital. Your retirement plan accounts for inflation, withdrawal sequencing, and estate planning. But there is one risk most retirement plans do not address clearly: what happens if a serious illness or injury stops you from working at 47, 52, or 58?

According to Statistics Canada's 2022 Canadian Survey on Disability, nearly one in four working-age adults aged 25 to 64 reported living with a disability that limited their daily activities. The Society of Actuaries estimates that more than one in four workers will experience a long-term disability lasting 90 days or more before reaching age 65. The Canadian Cancer Society estimates that two in five Canadians will develop cancer in their lifetime. These are not remote possibilities. They are statistically common events that most retirement plans treat as afterthoughts.

Learn more about me and my services here .

The financial cost of a health event in peak earning years

The real risk is not the health event itself. It is the compounding financial damage that follows when income stops during the years when wealth accumulation should be accelerating the most. The years between 50 and 65 typically bring peak earnings, reduced family expenses, and maximum compounding momentum. A significant disruption at this stage does not create a short-term cash-flow problem; it creates a retirement shortfall that rarely recovers.

This is where many retirees stumble. An overly conservative approach fails to keep pace with inflation. An overly aggressive one exposes the portfolio to risks that time can no longer correct. The goal is a disciplined decumulation strategy that delivers steady income, preserves purchasing power, and maintains enough flexibility to absorb unexpected shocks.

Illustrative example only. Figures are hypothetical and for educational purposes. Individual outcomes will vary based on income, contribution history, investment returns, and personal circumstances.

Group long-term disability benefits typically replace only 60 to 70 per cent of pre-disability income, often capped at a level well below what a senior professional earns. Self-employed professionals and incorporated business owners frequently have no disability coverage unless they arrange it independently. According to the Canadian Life and Health Insurance Association, Canadian insurers paid $143.3 billion in claims in 2024, a figure that reflects both how common these events are and how consequential they become without adequate protection in place.

How disability derails retirement savings

Beyond income replacement, a multi-year disability triggers a chain of secondary financial consequences that most Canadians do not anticipate. RRSP contributions stop, eliminating both the deposit and the years of compounding that would follow. Registered account withdrawals, forced by cash flow pressure, create immediate tax consequences and permanently reduce the asset base. TFSA contribution room lost to forced withdrawals is not recovered. For incorporated business owners, a disability may also disrupt corporate income streams or destabilize a professional corporation structure that took years to build.

Individual disability insurance with an own-occupation definition addresses this by replacing income at a level calibrated to actual earnings, preserving the capacity to continue building retirement wealth rather than liquidating it.

Critical illness coverage protects three things

A common misconception is that critical illness insurance exists to pay medical bills. In Canada, provincial health plans cover the primary treatment costs for conditions such as cancer, heart attack, and stroke. The financial damage comes from disruption. A critical illness policy pays a one-time, tax-free lump sum upon diagnosis of a covered condition, which the policyholder can direct to any financial priority.

Three things it protects:

Recovery time. A serious diagnosis may require months or years away from generating active income. The lump-sum benefit creates a financial buffer that allows recovery without drawing down RRSP or TFSA assets out of sequence.
Business continuity . For incorporated professionals and business owners, a health crisis can threaten client relationships, revenue, and operational obligations. A critical illness benefit can fund interim staffing, debt servicing, or partnership requirements during a recovery period that group benefits do not cover.
Retirement savings continuity. A benefit sized to reflect the retirement account shortfall from a multi-year contribution gap allows the professional to maintain registered account contributions, avoiding both the tax cost of early withdrawals and the compounding loss that follows.

Disability and critical illness insurance are not interchangeable. Disability insurance replaces income over time. Critical illness insurance delivers a lump sum at diagnosis. Both serve distinct roles in a comprehensive retirement protection strategy.

Integration with the retirement income strategy

Disability and critical illness coverage are most effective when they are calibrated components of the broader retirement income plan, not standalone products purchased separately. The key questions are:

Does the disability coverage replace income at a level that allows continued contributions to registered accounts, not merely living expenses?
Is the critical illness benefit sized to reflect the retirement shortfall a multi-year contribution gap would create?
Are coverage structures aligned with the life stages where financial risk is highest?

This integration is where most professionals find their current planning falls short, not because the intention was absent, but because the investment and insurance conversations typically happen with different advisors who do not coordinate with each other.

A coordinated approach

As a dual-licensed Investment Advisor and licensed life insurance professional through Ventum Insurance Services Corp., I can evaluate both the investment and insurance dimensions of a client's plan in a single, coordinated conversation. Most clients work with an investment advisor who does not hold an insurance licence, or with an insurance agent who does not have access to the investment portfolio. These two advisors rarely speak to each other, and the gap between them is where wealth erosion during a health event tends to happen.

My role is to look at your retirement trajectory and your current coverage together, identify the points at which a disability or critical illness would cause the most financial damage, and build a strategy that addresses both sides in an integrated way. Through Ventum Insurance Services Corp., I have access to a range of disability, critical illness, and life insurance products from reputable Canadian insurance companies, matched to your specific situation rather than limited to a single provider.

Request a complimentary coverage review

If you are between 40 and 60 and have not had a formal insurance coverage review as part of your retirement plan, the time to address it is before a health event, not after. I invite you to book a complimentary 20-minute consultation to discuss whether your current disability and critical illness coverage aligns with your retirement income goals.

If you are looking for a second opinion on your portfolio or would like to have a planning conversation tailored to your needs, book a no-obligation complimentary portfolio review with me today .

For a broader framework on how retirement income, tax strategy, and protection planning work together, download The Retirement Blueprint at mcbridewealthmanagement.ca.

Source

Statistics Canada. New Data on Disability in Canada, 2022. Government of Canada, Dec. 1, 2023. https://www150.statcan.gc.ca/n1/pub/11-627-m/11-627-m2023063-eng.htm

Statistics Canada. Accessibility in Canada: Results from the 2022 Canadian Survey on Disability. Government of Canada, May 28, 2024. https://www150.statcan.gc.ca/n1/daily-quotidien/240528/dq240528b-eng.htm

Statistics Canada. Labour Market Characteristics of Persons with and Without Disabilities, 2024. Government of Canada, May 14, 2025. https://www150.statcan.gc.ca/n1/pub/71-222-x/71-222-x2025001-eng.htm

Canadian Cancer Society. Canadian Cancer Statistics at a Glance. Canadian Cancer Society, updated 2024. https://cancer.ca/en/research/cancer-statistics/cancer-statistics-at-a-glance

Canadian Institute for Health Information. Taking the Pulse: A Snapshot of Canadian Health Care, 2024. CIHI, 2024. https://www.cihi.ca/en/taking-the-pulse-a-snapshot-of-canadian-health-care-2024

Canadian Life and Health Insurance Association. Claims in Canada Rising: $143.3 Billion Paid to Help Keep Canadians Healthy and Financially Secure. CLHIA, Sept. 23, 2025. https://www.clhia.ca/en-ca/media-and-publications/news-releases/2025/Claims-in-Canada-rising-143-billion-paid-to-help-keep-canadians-healthy-and-financially-secure

Society of Actuaries. Long-Term Disability Incidence Study. Society of Actuaries, 2021. https://www.soa.org/resources/research-reports/2021/disability-incidence/

McBride, Steve. The Retirement Blueprint: Building Income That Lasts a Lifetime. McBride Wealth Management, 2026. https://www.mcbridewealthmanagement.ca/

Ventum Financial Corp. www.ventumfinancial.com

Vancouver Office

2500 - 733 Seymour Street

Vancouver, BC V6B 0S6

Ph: 604-664-2900 | Fax: 604-664-2666

For a complete list of branch offices and contact information, please visit our website.

For further disclosure information, reader is referred to the disclosure section of our website.

Weekly Economics Report - March 9 2026

Tue, 10 Mar 2026 16:01:21 GMT

China consumer inflation hits 3-yr high on holiday surge, producer deflation lingers

BEIJING, March 9 (Reuters) - China's consumer inflation accelerated to the highest in more than three years due to the effects of the Lunar New Year holiday, while producer deflation persisted as weak demand remained a drag on an economy facing stiff external challenges.

Policymakers have been trying to boost consumption over the past two years, but analysts say more needs to be done to address the supply-demand imbalance.

The consumer price index (CPI) rose 1.3% year-on-year for the fifth month of gains and outpaced the 0.2% increase in January, data from the National Bureau of Statistics (NBS) showed on Monday. The rate was the highest in 37 months, and beat an expected 0.8% rise in a Reuters poll.

A nine-day Lunar New Year holiday boosted domestic travel and consumer spending, lifting the headline CPI as services prices surged. Flight ticket prices rose 29.1% year-on-year, while gold jewellery prices soared 76.6%, according to NBS data. Analysts said it was uncertain whether the recovery in consumer prices could last.

"Tensions in the Middle East will push inflation higher for as long as global energy prices remain elevated," said Zichun Huang, ⁠China economist at Capital

Economics, referring to a rapid jump in oil prices in the wake of the U.S. and Israeli strikes against Iran.

However, China's five-year plan unveiled at a key parliament meeting last week disappointed "in terms of boosting domestic demand," Huang said, meaning "any inflationary pickup will unwind once tensions ease."

Core CPI, which excludes volatile prices of food and fuel, rose 1.8% year-on-year, compared with the 0.8% uptick in January. On a monthly basis, CPI increased 1% versus a 0.2% rise in January and an expected 0.5% gain.

CiOIL SHOCK REARS HEAD AS DEFLATION PERSISTS

The economy has been beset by a years-long property market slump and external trade uncertainties, with protectionist U.S. policies posing fresh challenges to policymakers.

Beijing has vowed to keep cracking down on excessive competition and ensure smoother exit of inefficient production capacity in order to stabilise prices.

However, the deflationary impulse across the economy continues to exert margin pressure on the manufacturing sector, while underpinning expectations of sustained price falls in a further blow to confidence.

There was a modicum of relief in the latest data, however. The producer price index (PPI) recorded the smallest year-on-year drop since July 2024, having fallen 0.9% in February. It declined 1.4% the previous month, and the Reuters poll had forecast a 1.2% drop.

In a statement, NBS statistician Dong Lijuan attributed the milder producer deflation to factors including stronger prices in advanced and emerging sectors as well as capacity management in key industrial sectors.

PPI rose 0.4% in February from January, driven partly by rising crude oil prices globally and demand linked to growth in computing power, Dong said.

Beijing is aiming for GDP growth of between 4.5% and 5% for the year, slower than the previous year's "around 5%", signalling willingness to accommodate reforms that could help the economy reduce its reliance on external demand.

The government's CPI target for 2026 remained unchanged at "around 2%", a goal that China's state planner said was "conducive to guiding public expectations and boosting market confidence while also leaving room for macro regulation and further reforms".

China has not achieved its annual CPI goals for years.

The government has pledged to implement "more proactive" macroeconomic policies in 2026. The central bank in January cut sector-specific interest rates and earmarked more cheap loans to small and medium-sized tech and private firms.

"Unless the oil price shock is notably stronger and longer than expected, it's not expected that inflation will inhibit PBOC easing this year," Lynn Song, chief economist for Greater China at ING, said.

There is room for a rate cut in the second quarter as the economy likely got off to a soft start in 2026, Song added, though policymakers can choose a more cautious route and delay the easing.

Middle East conflict sticks 2026 consensus trades into reverse

March 9 (Reuters) - The escalating war in the Middle East has investors questioning some of 2026's most popular trades and themes, with global equities slumping, the dollar jumping and traders scaling back their bets for rate cuts from the Federal Reserve.

"This year, investors have been positioning for growth. A stagflationary shock was not part of the plan," said ING head of global markets Chris Turner.

"Investors are looking at things cautiously and would still have more to unwind."

Here are five popular themes that have been upended by the conflict in the Middle East:

1/ DOLLAR SHORTS SQUEEZED

Investors had been holding their largest bearish bet on the dollar since 2021 as recently as last month, according to weekly data from the U.S. markets regulator.

Expected rate cuts from the U.S. Federal Reserve gave little incentive to buy too heavily into the U.S. currency. But after the start of the conflict, the dollar has hit its strongest level since last November, in a sign of a rush to safety. "The U.S. dollar emerges as the biggest winner of the Middle East conflict," said Ipek Ozkardeskaya, senior analyst at Swissquote. "The U.S. economy will likely be more resilient to energy shocks."

The U.S. is a net energy exporter these days and imports just 17% of its needs, a 40-year low, according to Jean-François Robin, head of global research at Natixis CIB.

2/ REST OF WORLD EQUITIES SLUMP

Global equities, which began 2026 supported by a broad "buy equities" consensus, have slid sharply.

The MSCI World ex‑US index .MIWU00000PUS fell abruptly after the U.S. and Israeli strikes on Iran, while the S&P 500 .SPX proved more resilient as investors favoured the U.S., given the economy is less reliant on energy imports.

"The conflict hasn't destroyed the 2026 long-equities thesis, but it has made it far more rate- and oil-dependent," said Lale Akoner, global market strategist at eToro, adding that if energy keeps inflation sticky, "multiples, not earnings, are the weak link."

She said earlier signs of leadership broadening beyond the United States have faded as investors returned to the depth and liquidity of U.S. markets. Swissquote's Ozkardeskaya said the shock could shift flows toward energy-rich markets and weigh on energy-dependent economies, potentially halting the rotation from the U.S. to Europe and Asia.

3/ EMERGING MARKETS RATTLED

Emerging markets stocks and currencies were strong performers at the beginning of the year, with a jump of over 15% in EM stocks .MIEF00000PUS and a 1.9% rise in MSCI's index of emerging market currencies .MIEM00000CUS until last Friday.

But the two indexes lost 7% and 1.5% respectively last week, with sharp falls in strong year-to-date performers such as South Korea's Kospi .KS11 .

"The biggest underperformers this week were the outperformers between January and February," Goldman Sachs said about emerging currencies in a note to clients on Wednesday.

The brokerage said de-risking was strongest in markets most exposed to the Middle East and oil shocks, such as Egypt, the United Arab Emirates and Thailand, and last year's outperformers like Korea, Brazil and South Africa.

Analysts at JPMorgan moved EMEA emerging market FX to 'marketweight' on Tuesday, and added Poland's zloty to their list of 'underweight' currencies, saying central and eastern Europe is particularly exposed to energy prices.

4/ FED RATE CUTS IN DOUBT

Surging energy prices stoked inflation worries and pushed traders to moderate their expectations on interest-rate cuts by the Fed. Prior to the start of the conflict, markets had expected around a 50% chance of a rate cut at the June meeting, which would be the first under its new chairman. That has now been cut to around 25%.

The recent energy shock has pushed markets to scale back expectations for interest-rate cuts for the Bank of England and traders are now pricing for the European Central Bank to raise rates, rather than cut, this year. "Some of the largest shifts in 2026 G10 central bank pricing have come in economies which were priced for further easing this year," Goldman Sachs said.

5/ BANKS

Banking stocks .MIWO0BK00PUS — which had logged modest gains earlier in 2026 — have fallen as investors reassess the economic fallout from disruption in the Strait of Hormuz.

The risk of higher energy costs fed fears that broader inflation pressures could return, raising the prospect of slower lending and weaker credit demand even if rates remain elevated.

While higher interest rates typically support bank margins, renewed inflation worries can curb borrowing and investment.

"The key risk to watch is credit spreads and private-market liquidity; geopolitical headlines matter mainly if they translate into tighter financial conditions," eToro's Akoner said.

Ventum Financial Corp. www.ventumfinancial.com

Vancouver Office

2500 - 733 Seymour Street

Vancouver, BC V6B 0S6

Ph: 604-664-2900 | Fax: 604-664-2666

For a complete list of branch offices and contact information, please visit our website.

For further disclosure information, reader is referred to the disclosure section of our website.

The Three Pillars of Retirement Income Every Canadian Should Understand

Wed, 18 Feb 2026 23:36:57 GMT

For many Canadians approaching retirement, the question that keeps them up at night is not "Did I invest well?" It is something far more urgent: Will my wealth last as long as I do?

Research by CPP Investments found that 61 per cent of Canadians fear running out of money in retirement. That concern is well-founded. Canadians are living longer than ever, with many now spending 25 to 30 years in retirement, roughly as long as an entire working career. Add inflation that steadily erodes purchasing power, healthcare costs that rise with age, and market volatility that can destabilize even well-built portfolios, and the challenge is clear: building retirement income is a fundamentally different exercise than building retirement savings..

Learn more about me and my services here .

The Shift From Saving to Spending limit

During your working years, the goal is straightforward: save as much as possible, reinvest, and let compounding work. Retirement flips that equation entirely. Your portfolio must now generate reliable income for decades while simultaneously protecting purchasing power and managing risk.

Three income sources are central to getting this right for most affluent Canadians: government benefits, registered accounts, and insurance-based solutions.

Pillar 1: Government Benefits Require a Strategy

CPP and OAS are the only retirement income sources that are guaranteed for life and indexed to inflation. Most Canadians treat them as an afterthought, but the timing of when you start these benefits may be one of the most consequential decisions in your retirement plan.

Taking CPP early reduces your benefit substantially. Waiting until age 70 increases it by 42 per cent compared to taking it at 65. For affluent Canadians with significant RRSP balances, deliberately delaying CPP while drawing from registered accounts in the early retirement years can produce a considerably better tax outcome over a lifetime.

OAS adds another layer of complexity. Once your net income exceeds a set threshold (approximately $90,997 in 2025), OAS benefits begin to be clawed back at 15 cents per dollar. Strategic RRIF withdrawal planning and TFSA usage can help keep income below that threshold and preserve benefits worth thousands of dollars annually.

Pillar 2: Your Registered Accounts Are Not a Simple Piggy Bank

Most Canadians know what an RRSP, TFSA, and RRIF are. Far fewer understand how to draw from them in a sequence that minimizes taxes and maximizes lifetime wealth.

The 4% rule, a widely cited retirement guideline, suggests withdrawing 4 per cent of your initial portfolio annually, adjusted each year for inflation. It was developed in the 1990s using U.S. market data, and while it remains a useful benchmark, it was not designed with Canadian tax structures, OAS clawback rules, or current market conditions in mind. In practice, a more conservative approach of 3 to 3.5 per cent may be appropriate, depending on your personal circumstances.

What matters as much as the withdrawal rate is the sequencing. Which accounts you draw from first can have a significant impact on your lifetime tax bill, government benefits eligibility, and the size of your estate. This requires ongoing coordination and regular review, not a one-time decision.

Pillar 3: Insurance and Annuities Provide a Floor

Annuities and insurance-based products are often overlooked in retirement income planning, but they serve a purpose that investment portfolios cannot: guaranteed income for life. An annuity eliminates longevity risk entirely, providing a stable income floor regardless of market conditions or how long you live.

For business owners and high-net-worth families, permanent life insurance with cash value accumulation can also serve as a supplementary income source, offering tax-deferred growth and flexible access through policy loans. As a dual-licensed advisor holding both investment and insurance licences, I am able to integrate these solutions directly into a comprehensive retirement income plan rather than treating them as separate products with separate advisors.

The Cost of Getting This Wrong: RRSP Checklist for affluent Canadians

One of the most underappreciated risks in retirement is sequence-of-returns risk: the damage caused by poor market performance in the early years of retirement when withdrawals are actively reducing the portfolio. Two retirees with identical long-term average returns but different sequences of early returns can end up with dramatically different outcomes. This risk, combined with inflation and rising healthcare costs, is why retirement income planning demands ongoing attention, not just pre-retirement preparation.

Go Deeper With The Retirement Blueprint

This article introduces the core framework, but sustainable retirement income requires considerably more depth than any single article can provide. I have published The Retirement Blueprint: Building Income That Lasts a Lifetime, a comprehensive white paper that walks through withdrawal strategies, tax-efficient drawdown sequencing, portfolio construction for decumulation, and a real-world case study of a 60-year-old couple building a coordinated income plan.

Download The Retirement Blueprint HERE.

If you would like to discuss how these principles apply to your specific situation, I invite you to book a complimentary 20-minute consultation . Retirement income planning works best when it starts before you need it.

If you are looking for a second opinion on your portfolio or would like to have a planning conversation tailored to your needs, book a no-obligation complimentary portfolio review with me today.

Source

McBride, Steve. The Retirement Blueprint: Building Income That Lasts a Lifetime. McBride Wealth Management / Ventum Financial Corp., 2025.

Ventum Financial Corp. www.ventumfinancial.com

Vancouver Office

2500 - 733 Seymour Street

Vancouver, BC V6B 0S6

Ph: 604-664-2900 | Fax: 604-664-2666

For a complete list of branch offices and contact information, please visit our website.

For further disclosure information, reader is referred to the disclosure section of our website.

Weekly Economics Report - Feb. 10, 2026

Tue, 10 Feb 2026 15:59:57 GMT

Take Five: Near, far, wherever markets are

LONDON, Feb 6 (Reuters) - The outcome of Japan's snap election, a heavy dose of key U.S. data, earnings season, and a slide in (some) tech shares suggest traders will have little downtime in the coming week.

Here is all you need to know about what's coming up in financial markets, by Rae Wee in Singapore, Lewis Krauskopf in New York and Karin Strohecker, Tommy Wilkes and Lucy Raitano in London.

1/ LANDSLIDE VICTORY

Japanese Prime Minister Sanae Takaichi's coalition swept to a historic election win over the weekend, paving the way for promised tax cuts and military spending aimed at countering China.

Investors reacted by sending Japanese stocks to all-time peaks on Monday while super-long bonds reversed early weakness, in an apparent vote of confidence in Takaichi's "responsible, proactive" fiscal policy.

The yen JPY= also held its ground, as the looming threat of a potential currency intervention left traders hesitant to push it lower.

While voters have given Takaichi a huge mandate to reflate the economy, investors say she has little room to run up deficits or pressure will be quickly back on bonds and the currency.

An early test will be how she handles a pledge to suspend Japan's 8% sales tax on food and how she plans to fund it.

2/ AI SPLITS INTO WINNERS AND LOSERS

Cisco Systems CSCO . O and Germany's Siemens Energy report earnings on Wednesday.

They've benefited from the AI boom in different ways, but now Barclays says that trade is "seeing extreme dispersion". In other words, the market is sifting between the winners and losers with more conviction. The sensitivity to which companies are benefiting or suffering from AI disruption is evident in sliding software and data analytics stocks. They have plunged as traders honed in on the existential threat posed by increasingly powerful AI models. AI enablers, companies contributing to the global AI data centre build-out, meanwhile, have fared better. But with the spectre of a bubble popping and markets near record highs, it would be wise to hold onto your hats.

3/ DELAYED DATA DUMP

A double dose of major U.S. economic reports should give investors a critical view of the economy, after the releases were delayed a little by the recently ended three-day government shutdown.

The January non-farm payrolls report, now due on Wednesday, is expected to show an increase of 70,000 jobs, according to a Reuters poll. The Federal Reserve pointed to signs of stabilisation in the labour market as it held rates steady last month, pausing its easing cycle.

Two days later, the January consumer price index, one of the most closely watched measures for assessing inflation trends, is set to be published. The data comes as investors gauge the impact of newly nominated Fed chair Kevin Warsh, who could take charge in time for the Fed's June meeting. Markets currently price that meeting as the likely next time for a rate cut.

4/FROM MUNICH, WITH LOVE

The Munich Security Conference gets underway on Thursday. Now in its seventh decade, the annual gathering saw possibly its most consequential - and contentious — meeting in 2025 when a series of U.S. statements set the stage for a tectonic shift in the international order still underway today.

There is no shortage of hot geopolitical issues - from Iran to Ukraine and Greenland - while questions over the future role of NATO are looming large.

But the meeting looks to stretch beyond its usual scope: The European Central Bank is working on opening up access to euro liquidity to more countries - part of efforts to bolster the single currency's international role, sources told Reuters. The announcement will likely come from ECB chief Christine Lagarde, who will open a roundtable on trade dependencies at the conference.

5/ EUROPEAN BANKS' TIME IN THE SUN OVER?

European banks have been among the best performing stocks in the past 12 months .SX7P with a more than 60% gain, aided by rising profitability, low loan defaults and a showering of shareholders with cash.

Britain's Barclays BARC.L and NatWest NWG.L and Italy's UniCredit CRDI.MI report 2025 earnings in coming days, following generally strong numbers already from Deutsche Bank DBKGn.DE and BNP Paribas BNPP.PA . The French lender and Lloyds LLOY.L also lifted their key profitability targets.

But analysts warn the good times cannot last, especially if European economies slow. Spain's BBVA BBVA.MC saw a 7% drop in its shares on Thursday after it set aside 19% more in cash for loan losses in the fourth quarter than a year earlier. As well as financial prospects, investors are looking for signs that bosses have an appetite to spend more of their excess capital on deals - such as Santander's recently announced $12.2 billion acquisition of U.S. lender Webster Financial WBS.N.

China's forex reserves grow more than expected in January

The country's foreign exchange reserves, the world's largest, rose to $3.399 trillion last month, exceeding the $3.372 trillion forecast in a Reuters poll. The reserves totalled $3.358 trillion in December.

The yuan CNY=CFXS rose 0.45% against the dollar last month, while the dollar softened 1.15% against a basket of major currencies =USD .

Ventum Financial Corp. www.ventumfinancial.com

Vancouver Office

2500 - 733 Seymour Street

Vancouver, BC V6B 0S6

Ph: 604-664-2900 | Fax: 604-664-2666

For a complete list of branch offices and contact information, please visit our website.

For further disclosure information, reader is referred to the disclosure section of our website.

The RRSP Deadline Strategy: Tax-Smart Steps for Affluent Professionals

Wed, 21 Jan 2026 22:28:19 GMT

March 2 is approaching fast. Do you have a strategy to deploy your investment capital during the RRSP contribution deadline period?

RRSP season is when affluent Canadians can turn a routine contribution into a deliberate tax decision. The closer you get to the RRSP contribution deadline, the more tempting it is to focus on “getting the money in” rather than getting your strategy right.

For the 2025 RRSP season, the CRA lists March 2, 2026 as the deadline to contribute to an RRSP or related plans and still claim the deduction against your 2025 income. If you contribute after the RRSP contribution deadline, the contribution can still be value, but the deduction generally shifts to a later tax year, which throws off your tax planning and contribution planning math.

Learn more about me and my services here .

STEP 1: Separate the RRSP contribution limit from your personal deduction limit

The most common mistake I see being made by affluent professionals and business owners is anchoring and planning based on the headline RRSP contribution limit instead of their actual deduction limit.

CRA’s published RRSP dollar contribution limit for 2025 is $32,490 (for 2026 it will be $33,810). This is what many people casually call the RRSP contribution limit, but it is only the maximum annual ceiling before personal adjustments.

Your real planning number is your RRSP deduction limit on your own Notice of Assessment (available in your ‘CRA My Account). It reflects the prior-year earned income, pension adjustments and any unused room carried forward. So in fact, your RRSP room is tied to your personal situation and income as confirmed on your Notice of Assessment.

The pattern is clear. Chasing forecasts typically results in buying high after rallies and selling low during corrections, the opposite of successful investing.

If you are aiming to maximize your RRSP contribution limit before the RRSP contribution deadline, start by confirming your exact deduction room. Otherwise, you risk contributing more than you can deduct right now.

STEP 2: Avoid overcontributions that create tax liability

Busy professionals and high-income business owners sometimes overcontribute unintentionally especially when there are multiple investment accounts across different banks and account types such as RRSPs, spousal accounts, group or corporate plans and even late receipts.

The CRA rule is straightforward. If your unused contributions exceed your RRSP deduction limit by more than $2,000 you will be assessed a 1% per month tax on the excess. This penalty can quietly accumulate until you correct it or create new room to absorb it.

For practicality, most clients should be on a set contribution plan monthly with a review near the end of the year based on your Notice of Assessment to adjust as necessary. Or ensure a review is conducted in January every year based on this assessment and to contribute a lump sum before the contribution deadline.

STEP 3: Use a spousal RRSP to manage future tax bracket s

A spousal RRSP is not only an efficient income-splitting idea. It is a retirement income design tool that balances out tax liabilities. When one spouse is likely to retire with a higher taxable income than the other, a spousal RRSP can help smooth out future withdrawals across two tax returns, potentially lowering the higher tax bracket and reducing taxes.

The key is respecting the attribution window. If you want to avoid having a spouse’s withdrawal taxed back to the contributor, you should not contribute to any of your spouse’s RRSPs in the year of withdrawal or either of the preceding two years. This is why planning is key to ensuring a multi-year investment plan for a spousal RRSP. This supports a more predictable retirement tax profile, which may be more valuable than maximizing a single year’s refund.

Steve Says: “Treat RRSP season like capital allocation, not a shopping deadline. I would rather see a client make a sustainable contribution they can hold through volatility than chase a bigger deduction that forces a later sale. The tax refund or tax mitigation is the byproduct, but disciplined investing is the strategy.”

STEP 4: RRSP vs TFSAs for affluent Canadians

The RRSP vs TFSA question is rarely about which account is ‘better.’ It is about your current tax rate, your future tax rate, and how much flexibility you want.

RRSPs defer tax in your current filing year and can be advantageous if your marginal tax rate is expected to be lower in retirement. While investing into TFSAs can be better if your income will be higher later. The TFSA dollar limit is $7,000 for 2025 and 2026.

Here is a simple RRSP vs TFSA test you can apply:

Use RRSP contributions when your current marginal rate is high and you expect more manageable taxable income later, or if you want to systematically reduce taxable income in peak earning years.
Use TFSA contributions when flexibility matters, when future taxable income may remain high or you tax-free withdrawals that will not add to taxable income in a given year
If you have maximized contribution limits consistently for both RRSPs and TFSAs there are many other strategies to mitigate either income and capital gains taxes that require an advisory conversation, such as tax loss selling or flow-through shares just to name a couple.

For many households its not an either-or conversation for RRSPS and TFSAs, yet rather a sequencing conversation.

RRSP Checklist for affluent Canadians

Confirm your personal deduction limit on your latest Notice of Assessment before acting on the published RRSP contribution limit.
If you are contributing close to the contribution deadline, account for processing and settlement not just the day of submittal.
Coordinate spousal RRSP contributions with any planned withdrawals to avoid attribution.
Keep a buffer to reduce the risk of over contributing beyond the $2,000 threshold that will trigger a penalty tax.
Logically check any RRSP vs TFSA investment decisions against expected retirement tax bracket and liquidity needs.

If you are looking for a second opinion on your portfolio or would like to have a planning conversation tailored to your needs, book a no-obligation complimentary portfolio review with me today.

Sources

Canada Life. “Important Savings Deadlines and Limits for 2025.” Canada Life, Oct. 29, 2025. https://www.canadalife.com/investing-saving/saving/important-savings-deadlines-limits.htm
Canada Revenue Agency. “Due Dates and Payment Dates: Personal Income Tax.” Government of Canada, updated 2025. https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/important-dates-individuals.html
Canada Revenue Agency. “Calculate Your TFSA Contribution Room.” Government of Canada, updated 2025. https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/tax-free-savings-account/contributing/calculate-room.html
Canada Revenue Agency. “Where Can You Find Your RRSP Deduction Limit.” Government of Canada, updated 2025. https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/contributing-a-rrsp-prpp/where-you-find-your-rrsp-prpp-deduction-limit.html
Canada Revenue Agency. “How Contributions Affect Your RRSP Deduction Limit.” Government of Canada, Apr. 28, 2025. https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/contributing-a-rrsp-prpp/contributions-affect-your-rrsp-prpp-deduction-limit.html
Ontario Securities Commission. “The Top Differences Between TFSAs, RRSPs and FHSAs.” GetSmarterAboutMoney.ca, May 8, 2025. https://www.getsmarteraboutmoney.ca/learning-path/rrsps/the-top-differences-between-tfsas-rrsps-and-fhsas/
Canadian Investment Regulatory Organization. “Invest Smart: Taxes and Investing.” CIRO Office of the Investor, updated 2024. https://www.ciro.ca/office-investor/investing-basics/invest-smart-taxes-and-investing

Ventum Financial Corp. www.ventumfinancial.com

Vancouver Office

2500 - 733 Seymour Street

Vancouver, BC V6B 0S6

Ph: 604-664-2900 | Fax: 604-664-2666

For a complete list of branch offices and contact information, please visit our website.

For further disclosure information, reader is referred to the disclosure section of our website.

Weekly Economics Report - Jan 10, 2026

Sat, 10 Jan 2026 18:14:30 GMT

US Consumer Sentiment Rises Slightly in January

The University of Michigan’s consumer sentiment index inched up for the second consecutive month, rising to 54.0 in January 2026, its highest level since September 2025 and slightly above market expectations of 53.5, according to a preliminary estimate.

Gains were concentrated among lower-income consumers, while sentiment among higher-income households slipped. Overall, US households reported modest improvement in economic perceptions over the past two months, but sentiment remains nearly 25% below January 2025 levels. Consumers continue to worry about high prices and a softening labor market, though concerns about tariffs appear to be gradually easing. Year-ahead inflation expectations held steady at 4.2%, the lowest since January 2025, yet still well above the 3.3% recorded a year ago. Meanwhile, long-term inflation expectations ticked up slightly, rising to 3.4% from 3.2% in December.

Source: Trading economics

US job growth slows in December; unemployment rate eases to 4.4%

WASHINGTON, Jan 9 (Reuters) - U.S. job growth slowed more than expected in December amid business caution about hiring because of import tariffs and rising artificial intelligence investment, but the unemployment rate dipped to 4.4%, supporting expectations the Federal Reserve would leave interest rates unchanged this month.

Nonfarm payrolls increased by 50,000 jobs last month after rising by a downwardly revised 56,000 in November, the Labor Department's Bureau of Labor Statistics said on Friday. Economists polled by Reuters had forecast 60,000 jobs added after a previously reported 64,000 increase in November.

The closely watched employment report suggested the labor market remained stuck in what economists and policymakers have called a "no hire, no fire" mode. It also confirmed the economy was in a jobless expansion. Economic growth and worker productivity surged in the third quarter, in part attributed to the AI spending boom.

The labor market lost considerable momentum last year, largely blamed on President Donald Trump's aggressive trade and immigration policies, which economists and policymakers said reduced both demand for and supply of workers.

The sharp moderation in job growth, however, started in 2024. The BLS has estimated about 911,000 fewer jobs were created in the 12 months through March 2025 than previously reported. The agency will publish its payrolls benchmark revision next month with the January employment report. The overcounting has been blamed on the birth-death model, which is used by the BLS to estimate how many jobs were gained or lost because of companies opening or closing in a given month. Last month, the BLS said it would, starting in January, change the birth-death model by incorporating current sample information each month.

Together with the December employment report, the BLS published annual revisions to the household survey data for the past five years. The unemployment rate is calculated from the household survey.

The annual population control adjustments, normally incorporated with the January employment report, will be delayed. November's unemployment rate was revised down to 4.5% from the previously reported 4.6%. The median forecast in a Reuters poll of economists was for the jobless rate to have eased to 4.5% in December. Some economists say low supply has prevented a sharp rise in the unemployment rate. They estimated that between 50,000 and 120,000 jobs need to be created each month to keep up with growth in the working-age population.

The U.S. central bank cut its benchmark interest rate by a quarter of a percentage point to the 3.50%-3.75% range in December, but officials indicated they were likely to pause further reductions in borrowing costs for now to get a better sense of the economy's direction.

With factors like tariffs and AI preventing companies from hiring more workers, economists increasingly view the labor market's challenges as more structural than cyclical, which would make rate cuts less effective to stimulate job growth.

Canada job creation pauses after hiring surge, unemployment rate rises

OTTAWA, Jan 9 (Reuters) - Canada created just 8,200 net new jobs in December after three months of outsize gains and the unemployment rate rose to 6.8% from 6.5% as more people searched for work, Statistics Canada said on Friday.

Analysts polled by Reuters had expected a net loss of 5,000 positions and the jobless rate to edge up to 6.6%.

The Canadian dollar dipped to C$1.3880 to the U.S. dollar, or 72.05 U.S. cents, from C$1.3873, or 72.08 cents.

The economy had added a total of 181,000 new jobs from September through November, in contrast to almost no change in the first eight months when U.S. tariffs and trade uncertainty choked hiring.

There were 1.55 million people unemployed in December, an increase of 72,900, or 4.9%, from November.

"With more people once again looking for work, today's unemployment rate suggests that plenty of slack remains in the labor market," said Andrew Grantham, a senior economist at CIBC Capital Markets.

Full-time employment rose by 50,200 in December while part-time employment fell by 42,000.

Employment in health care and social assistance in December increased by 20,800 while the professional, scientific and technical services sector posted a drop of 18,100 positions, the first decrease since August. People aged from 15 to 24 have been hard hit by the economic uncertainty. After posting successive gains in October and November, the first advances since the start of the year, youth employment dipped by 1.0%. The average hourly wage of permanent employees - a gauge closely tracked by the Bank of Canada to ascertain inflationary trends - rose by 3.7%, down from 4.0% in November.

The Bank held its key policy rate steady at 2.25% on December 10 and said this was about the right level to keep inflation close to the 2% target. Money markets expect rates to stay on hold for the rest of the year.

"While hiring was soft and the unemployment rate rose, the survey wasn't weak enough to alter expectations for the Bank of Canada," Desjardins macro strategy head Royce Mendes said in a note.

US single-family housing starts rebound in October, building permits dip

WASHINGTON, Jan 9 (Reuters) - U.S. single-family homebuilding rebounded in October, but permits for future construction eased, signaling caution among builders as new housing inventory remains high and demand soft.

Single-family housing starts, which account for the bulk of homebuilding, increased 5.4% to a seasonally adjusted annual rate of 874,000 units in October, the Commerce Department's Census Bureau said on Friday. Starts dropped to a pace of 829,000 units in September from a 869,000-unit pace in August.

The reports were delayed by the 43-day government shutdown. Builders are also being constrained by higher building and labor costs because of import tariffs and an immigration crackdown.

Permits for future single-family homebuilding fell 0.5% to a rate of 876,000 units in October. They increased to a pace of 880,000 units in September from a 858,000-unit rate in August.

Ventum Financial Corp. www.ventumfinancial.com

Vancouver Office

2500 - 733 Seymour Street

Vancouver, BC V6B 0S6

Ph: 604-664-2900 | Fax: 604-664-2666

For a complete list of branch offices and contact information, please visit our website.

For further disclosure information, reader is referred to the disclosure section of our website.

Year-End Financial Planning: Why Smart Planning Beats Smart Predictions

Fri, 05 Dec 2025 16:08:00 GMT

As December arrives, so does the annual flood of predictions for next year. Should you adjust your portfolio based on these forecasts? History suggests otherwise.

As the New Year approaches, year-end financial planning in Canada should focus on controllable actions and not 2026 market predictions. You will start to see a flood of news articles and headlines that boast market predictions for 2026, including everything from interest rate forecasts, total market stock returns per index and even economic trends. How much stock should you put in them? Well, the title of this article gives you a hint – not much. History shows a consistent pattern that most predictions miss their mark and send investors on wild-goose chases for phantom returns. The wiser approach is to focus on what you can control through structured planning rather than what you cannot predict reliably about market direction.

“You can’t control what markets will do next year, but you can control whether you’ve maximized your RRSP, protected your family, and positioned your wealth for whatever comes.” ~Steve McBride

Learn more about me and my services here .

The Futility of Predictions

Financial experts face tremendous pressure to forecast next year’s markets, yet research consistently demonstrates their limited accuracy.

Benjamin Graham’s famous quote about how “in the short run, the market is a voting machine, but in the long run, it is a weighing machine,” describes a great analogy for predictions. There are no definitive data points that could accurately forecast much of what these pundits are forecasting. So in a sense, they are voting with their voices. Only after the year is finished can we see what the results are and weigh them.

Attempting to time the markets based on these predictions also typically results in:

Buying after prices have already risen
Selling after declines have occurred, and
Missing the strongest recovery days that often follow the worst declines

In fact, forecasters are wrong more often than they are right. In a study by Berkeley, of 16,559 forecasts, it found that elite economists were only correct 23% of the time despite reporting 53% confidence in their predictions. In another analysis by CXO Advisory Group, which studied 6,584 forecasts by ‘market experts,’ the accuracy averaged below 47% - worse than flipping a coin. Wall Street strategists have underestimated S&P 500 returns in 13 of the past 16 years, and in 2024, every major US banking institution underestimated the market, some by 60%.

The pattern is clear. Chasing forecasts typically results in buying high after rallies and selling low during corrections, the opposite of successful investing.

The Power of Planning

While predictions focus on the unknowable future events, planning addresses the controllable actions of the present. Effective year-end financial planning in Canada centres on three foundations:

Tax-advantaged account optimization: Maximizing RRSP and TFSA contributions creates long-term compounding benefits regardless of short-term market direction.
Risk management review: Ensuring insurance coverage, diversification, and withdrawal strategies remain aligned with your goals and life stage.
Tax-efficient positioning: Coordinating account types, withdrawal sequencing, and income timing to minimize lifetime tax obligations.

These planning activities deliver measurable value whether markets rise or fall in 2026 because they’re based on fundamental principles, not market forecasts.

Year-End Financial Planning Priorities for Canadians in 2025

Several year-end deadlines create time-sensitive planning opportunities. Missing these dates means delayed tax benefits, lost contribution room or unnecessary tax obligations.

RRSP Contributions

Deadline: March 2, 2026
Contribution Limit: Lesser of 18% of 2025 earned income or $32,490 annual maximum
Strategy: Early contributions put your money to work sooner with tax-deferred compounding

TFSA Planning

Annual contribution limit: $7,000 for 2025
Cumulative room for eligible Canadians (18+ since 2009): Up to $102,000 if never contributed
Strategy: Again early contributions maximize tax-free compounding throughout the year

Capital Gains and Tax Changes

Proposed capital gains inclusion rate increase was cancelled, leaving the rate at 50% for all capital gains.
Lifetime Capital Gains Exemption: increased to $1.25 million for qualifying small business shares
Strategy: Entrepreneurs and business owners gain planning certainty for 2026. They enhanced $1.25 million exemption may create favourable conditions for business succession planning.

Estate and Year-End Review

Charitable giving strategies: donating appreciated securities eliminates capital gains tax while generating donation receipts
Beneficiary review: verify designations on registered accounts and insurance policies
Income splitting: explore pension income splitting, and other opportunities for couples
Withdrawal strategies: Confirm that your drawdown approach remains tax-efficient given any income changes.

Have you assessed these year-end opportunities to ensure a solid foundation for 2026?

McBride Wealth Approach

At McBride Wealth Management, year-end financial planning for Canadian investors is built on timeless principles rather than annual market forecasts. This includes fundamentals-driven positioning for your portfolio holdings, systematic rebalancing, removing emotion and reinforcing buy-low, sell-high behaviour, and, lastly, tax-efficient structures to preserve wealth across decades.

As 2025 closes, resist the temptation to adjust your strategy based on ‘expert’ predictions for 2026. Instead, use smart planning to beat predictions.

Lastly, as I close out the year, I want to thank my clients, colleagues and coworkers for a wonderful year and wish you a fruitful 2026. Happy Holidays and may you have a wonderful New Year.

If you are looking for a second opinion on your portfolio or would like to have a planning conversation tailored to your needs, book a no-obligation complimentary portfolio review with me today.

Sources

Canada Life. "Important Savings Deadlines and Limits for 2025." Canada Life, 2025. https://www.canadalife.com/investing-saving/saving/important-savings-deadlines-and-limits-for-2025.html
Graham, Benjamin and David L. Dodd. Security Analysis: Principles and Techniques. McGraw-Hill, 1934. Quoted in Quote Investigator, "Quote Origin: In the Short-Run, the Market Is a Voting Machine," Jan. 9, 2020. https://quoteinvestigator.com/2020/01/09/market/
Kaiser Partner. "Predictions: Popular, but Not Very Helpful." Kaiser Partner Bank, Jan. 26, 2024. https://kaiserpartner.bank/news/predictions-popular-but-not-very-helpful/
Moore, Don and Sandy Campbell. "Why Economic Forecasts Are So Often Wrong." Berkeley Haas Newsroom, Sept. 23, 2024. https://newsroom.haas.berkeley.edu/why-forecasts-by-elite-economists-are-usually-wrong/
Nationwide Financial. "Be Skeptical of Stock Market Predictions for the Coming Year." Nationwide Financial Professionals Blog, Dec. 18, 2024. https://www.nationwide.com/financial-professionals/blog/markets-economy/articles/be-skeptical-of-stock-market-predictions-for-the-coming-year
Prime Minister of Canada. "Prime Minister Carney Cancels Proposed Capital Gains Tax Increase." Government of Canada, Mar. 21, 2025. https://www.pm.gc.ca/en/news/news-releases/2025/03/21/prime-minister-mark-carney-cancels-proposed-capital-gains-tax-increase
YCharts. "S&P 500 Forecasts for 2025: Major Bank Predictions & 2024 Accuracy Review." YCharts Blog, Sept. 3, 2025. https://get.ycharts.com/resources/blog/major-banks-sp-500-target-price-forecasts-for-2025/

Ventum Financial Corp. www.ventumfinancial.com

Vancouver Office

2500 - 733 Seymour Street

Vancouver, BC V6B 0S6

Ph: 604-664-2900 | Fax: 604-664-2666

For a complete list of branch offices and contact information, please visit our website.

For further disclosure information, reader is referred to the disclosure section of our website.

Safeguarding Wealth When the Economy Shifts

Thu, 27 Nov 2025 01:46:35 GMT

Are you doing enough to protect your wealth in a shifting economy?

Many affluent Canadians have already realized that economic uncertainty is the new normal. Between the market volatility of the past few years, the potential lost opportunities from the new Federal budget explained below, US tariffs and shifting global trade dynamics, financial planning challenges abound. While the Federal Budget, passed recently brings some needed tax stability and productivity super-deductions on new business investments, business owners and high-net worth families truly need protection strategies now more than ever. This article explores practical approaches to safeguarding wealth through diversification, strategic asset positioning and tax-efficient planning.

Learn more about me and my services here .

Strategic Diversification Principles. In the following areas, are you ensuring you have enough diversification to avoid the volatility that can be caused by high concentrations?

Asset class diversification: equities, fixed income, real estate, and alternative investments
Geographic diversification: Canadian, US, international and emerging markets exposure
Sector diversification: Balance beyond traditional Canadian strengths, as mentioned above
Currency diversification: US dollar and other major currency exposures reduce Canadian-dollar only risk.

Implementing Practical Measures. Taking a balanced and consistent approach and using specific investments can offer natural diversification. Consider the following options:

ETFs and mutual funds which provide cost-efficient diversification without individual stock selection complexities
Corporate-class structures may offer tax advantages for non-registered accounts
Consistent portfolio rebalancing to prevent concentration drift
As a business owner, start gradually moving wealth outside your core operating business, especially as retirement approaches
Investing in other international markets to diversify away from the current ongoing trade dispute in North America.

Be sure you are properly diversified or you may experience outsized negative impacts if volatility hits your over-concentrated asset classes and investments.

The first line of defence: diversification

If there is one golden rule about investing, this may be it. Diversification reduces your exposure to volatility and creates resilience against sector-specific downturns and trade shocks.

The Canadian Concentration Challenge. Affluent Canadians tend to hold concentrated positions in their businesses, real estate, or sector-specific investments, which exposes them to higher risk due to increased volatility in these asset classes or sectors. On top of that, as a Canadian investor, the S&P/TSX is heavily weighted toward financials, energy and materials, which make up about 65% of the index combined. Additionally, geographic concentration may amplify hidden vulnerabilities to regional economic shifts and trade disruptions, as we are seeing with the current US administration’s trade war.

Even as 85% of Canada-US trade remains tariff-free, diversification is even more critical, as trade is still in a highly volatile state.

Are you investing in Safe-Havens?

Safe-haven assets are not about maximizing returns ; they are about preserving capital and maintaining flexibility when opportunities arise during market downturns.

Canadian safe-haven assets include government bonds (Canadian and provincial), short-term GICs and high-interest savings accounts, gold and precious metals, defensive equity sectors and quality dividend-paying companies. Bonds provide stability and capital preservation, GICs offer liquidity and guaranteed returns, gold and metals offer further diversification (not for speculation), defensive equity sectors, including utilities, staples or healthcare, provide an offset to core investment sectors such as technology, financial and materials, while dividend-paying financial institutions such as banks or insurance companies ensure stable investment income.

Don’t forget the important role of fixed income. Fixed income products remain foundational for wealth preservation, reduce reinvestment risk and offer a balance between current income and capital preservation. Whether you’re using laddered bonds or GIC strategies, they are indispensable to combating volatility.

Ensure a comfortable liquid position. Avoid forced selling in downturns, but you should have a liquidity plan through TFSAs or high-interest savings accounts to balance income pressures in volatile times. Professionals should maintain three to six months liquidity, while business owners should plan for six to 12 months to be fully prepared.

Other strategies to consider include:

Maximizing TFSA contributions for tax-free growth and flexible withdrawals
Strategic RRSP/RRIF withdrawals to stay below OAS clawback thresholds
Pension income splitting to reduce a couple’s combined tax burden
Life insurance for estate liquidity to pay capital gains tax upon death
Entrepreneurs should implement business exits strategically to maximize exemptions
Business owners should leverage the new Super-Deduction for capital investments

These are just a few of the strategies to consider. Be sure to connect with the appropriate professional for tailored advice to your specific circumstances.

The Last Word

Economic and trade uncertainty demands proactive wealth protection strategies. If you are not employing diversification, defensive positioning and tax-efficient planning as foundational practices, your portfolio may be heading in the wrong direction. Taking advantage of new strategies, such as the Super-Deduction for business owners or others outlined here should be discussed with your financial advisor and other professionals. Being proactive is the key to establishing a plan during market volatility. As in last month’s discussion of fundamentals over headlines[PM1] , the focus here is on disciplined, value-oriented decisions rather than reactions to news

Steve’s Advice: “Budget 2025 gives us the stability to plan with confidence. The question isn’t whether uncertainty will continue; it’s whether you’re positioned to turn that uncertainty into opportunity.”

If you are a client, thank you for taking the time to read this and I look forward to our next conversation. Please feel free to share this with your friends and family who may be in need of another viewpoint. If you are looking for a second opinion on your portfolio or would like to have a planning conversation tailored to your needs, book a no-obligation complimentary portfolio review with me today.

Sources

Department of Finance Canada. "Budget 2025: Canada Strong – Our Plan." November 2025. https://www.budget.canada.ca/2025/home-accueil-en.html

Bank of Canada. "Monetary Policy." Accessed November 2025. https://www.bankofcanada.ca/monetary-policy-introduction/

Statistics Canada. "Consumer Price Index." Accessed November 2025. https://www.statcan.gc.ca/en/subjects-start/prices_and_price_indexes/consumer_price_indexes

TMX Group. "S&P/TSX Composite Index." Accessed November 2025. https://www.tmxinfoservices.com/indices/index-information?symbol=%5ETSX

RBC Wealth Management. "Federal Budget 2025: A Summary of Key Measures That May Impact You." November 4, 2025. https://www.rbcwealthmanagement.com/en-ca/insights/federal-budget-2025

Ventum Financial Corp. www.ventumfinancial.com

Vancouver Office

2500 - 733 Seymour Street

Vancouver, BC V6B 0S6

Ph: 604-664-2900 | Fax: 604-664-2666

For a complete list of branch offices and contact information, please visit our website.

For further disclosure information, reader is referred to the disclosure section of our website.

Weekly Economics Report - Nov 10, 2025

Tue, 11 Nov 2025 19:02:38 GMT

US Senate advances bill to end federal shutdown

By David Morgan and Nathan Layne

Senate bill would fund government through January 2026
Bill includes three appropriations measures
Democrats had resisted funding measure without healthcare fixes
Trump pushes for direct payments over ACA subsidies
Adds details on next steps, Thune quote in paragraphs 10-12

WASHINGTON, Nov 9 (Reuters) - The U.S. Senate on Sunday moved forward on a measure aimed at reopening the federal government and ending a now 40-day shutdown that has sidelined federal workers, delayed food aid and snarled air travel.

In a procedural vote, senators advanced a House-passed bill that will be amended to fund the government until January 30 and include a package of three full-year appropriations bills.

If the Senate eventually passes the amended measure, it still must be approved by the House of Representatives and sent to President Donald Trump for his signature, a process that could take several days.

Under a deal struck with a handful of Democrats who rebuffed their party’s leadership, Republicans agreed to a vote in December on extending subsidies under the Affordable Care Act. The subsidies, which help lower-income Americans pay for private health insurance and are due to expire at the end of the year, have been a Democratic priority during the funding battle.

The vote to advance the bill passed by a 60-40 margin, the minimum needed to overcome a Senate filibuster. “It looks like we’re getting very close to the shutdown ending,” Trump told reporters at the White House prior to the vote.

The bill would prohibit federal agencies from firing employees until January 30, a win for federal worker unions and their allies. It would stall Trump’s campaign to downsize the federal workforce. Some 2.2 million civilians worked for the federal government at the start of Trump’s second term, according to federal records. At least 300,000 employees are expected to leave the government by the end of this year due to Trump’s downsizing effort.

It would also provide back pay for all federal employees, including members of the military, Border Patrol agents, and air-traffic controllers.

When the Senate reconvenes on Monday, Republican leaders will try to get a bipartisan agreement to circumvent Senate rules and move quickly to passage. Otherwise, the chamber would require much of the coming week to move through procedural actions before voting on final passage, possibly extending the shutdown into next weekend.

“It was a good vote tonight," Senate Majority Leader John Thune told reporters after the Senate adjourned on Sunday. "Hopefully, we'll get an opportunity tomorrow to set up the next votes. Of course, that's going to take some cooperation and consent."

Sunday's deal was brokered by Democratic Senators Maggie Hassan and Jeanne Shaheen, both from New Hampshire, and Senator Angus King, an independent from Maine, said a person familiar with the talks.

"For over a month, I’ve made clear that my priorities are to both reopen government and extend the ACA enhanced premium tax credits. This is our best path toward accomplishing both of these goals," Shaheen posted on X. Senate Minority Leader Chuck Schumer, the chamber's top Democrat, voted against the measure. Many Democrats on the Hill watched the deal unfold with displeasure. “Senator Schumer is no longer effective and should be replaced,” wrote U.S. Representative Ro Khanna on X. “If you can’t lead the fight to stop healthcare premiums from skyrocketing for Americans, what will you fight for?"

Sunday marked the 40th day of the shutdown, which has sidelined federal workers and affected food aid , parks and travel, while air traffic control staffing shortages threaten to derail travel during the busy Thanksgiving holiday season late this month. Senator Thom Tillis, a Republican from North Carolina, said the mounting effects of the shutdown pushed the chamber toward an agreement. "Temperatures cool, the atmospheric pressure increases outside and all of a sudden it looks like things will come together," Tillis told reporters.

Should the government remain closed for much longer, economic growth could turn negative in the fourth quarter, especially if air travel does not return to normal levels by Thanksgiving, White House economic adviser Kevin Hassett warned on the CBS "Face the Nation" show. Thanksgiving falls on November 27 this year.

The wrangling on Capitol Hill came as Trump on Sunday again pushed to replace subsidies for the Affordable Care Act's health insurance marketplaces with direct payments to individuals. The subsidies, which helped double ACA enrollment to 24 million since they were put in place in 2021, are at the heart of the shutdown. Republicans have maintained they are open to addressing the issue only after government funding is restored.

Trump took to his Truth Social platform on Sunday to blast the subsidies as a "windfall for Health Insurance Companies, and a DISASTER for the American people," while demanding the funds be sent directly to individuals to buy coverage on their own. "I stand ready to work with both Parties to solve this problem once the Government is open," Trump wrote.

Americans shopping for 2026 Obamacare health insurance plans are facing a more than doubling of monthly premiums on average, health experts estimate, with the pandemic-era subsidies due to expire at the end of the year. The ACA enrollment period, however, runs through January 15, which would allow time for a legislative effort to extend the credits for next year.

US container imports fall in October amid tariff driven caution

By Abhinav Parmar and Lisa Baertlein

October's US container cargo imports dropped 7.5% y/y
Imports from China improved 5.4% from September but down 16.3% y/y
China's share of US imports may stabilize in the near term - Descartes
Imports from India down 19% month-over-month

Nov 10 (Reuters) - U.S. imports of containerized goods fell 7.5% year-over-year in October, as shipments from China plunged 16.3% amid importer caution over President Donald Trump's evolving tariff policies, supply chain technology provider Descartes DSG.TO said on Monday.

U.S. seaports handled a total of 2.3 million twenty-foot equivalent units (TEUs) last month, down 0.1% from September and below the 2.4 million to 2.6 million TEU range that typically signals peak trade activity, marking only the second October in the past decade to record a month-over-month decline. As holiday merchandise reaches store shelves and inventories remain well stocked, the National Retail Federation and Hackett Associates expect U.S. imports to slow in November and December, likely dropping below the 2 million TEU mark.

The anticipated declines this year partly reflect a late 2024 import surge fueled by concerns over potential port strikes and tariff-related frontloading that brought forward shipments originally scheduled for later months. "Our trade outlook is for a small decline in imports this year compared with 2024 and a further, larger decline in the first quarter of 2026," Hackett Associates Founder Ben Hackett said.

Imports from China, one of the United States' top trading partners, rose 5.4% month-over-month to 803,901 TEUs, but saw broad year-over-year declines in its largest categories with imports of furniture and bedding down 13.6%, toys and sporting goods down 30.4% and electrical machinery down 17.2% compared to 2024.

"October's results reflect ongoing caution among importers, with broad-based year-over-year declines and limited month-over-month growth. With new U.S.–China trade terms now in place following recent negotiations, China's share of U.S. imports may stabilize in the near term," Descartes said.

A 20% "fentanyl tariff" on Chinese imports drops to 10% on November 10, while a planned increase in reciprocal tariffs has been postponed for a year.

Meanwhile, an existing 10% tariff under the International Emergency Economic Powers Act remains in place with the Supreme Court reviewing its legality.

U.S. import volumes from the 10 largest sources rose 1.3% month-over-month in October, driven by China's recovery but partly offset by declines across Asia, with imports from India, Thailand, and Vietnam falling 19%, 6%, and 4.8%, respectively, according to Descartes.

China’s factory-gate deflation eases in October, consumer prices rise

By Kevin Yao and Yukun Zhang

October consumer prices rise 0.2% from a year earlier
Producer price index extends three-year drop but moderates
Authorities step up efforts to rein in price wars
Deflationary pressures easing, but not over yet, analyst says

BEIJING, Nov 9 (Reuters) - China's producer price deflation eased in October and consumer prices returned to positive territory, data showed on Sunday, as the government steps up efforts to curb over-capacity and cut-throat competition among firms.

Despite the improvement in headline numbers, analysts warn that deflationary pressures on the world's second-largest economy are not yet over, and the government may have to roll out additional policy measures to spur demand.

"Demand remains weak but a rebound in CPI indicates that supply-side policies are having an effect, and the supply-demand balance in many industries is improving," said Xu Tianchen, senior economist at the Economist Intelligence Unit. "The future trend of inflation will depend on how much demand-side policies are strengthened."

The producer price index fell 2.1% in October from a year earlier, National Bureau of Statistics (NBS) data showed, compared with an expected 2.2% decline in a Reuters poll of economists. The index has remained negative since October 2022 and dropped 2.3% in September. NBS statistician Dong Lijuan said capacity management in key industries has narrowed year-on-year producer price declines. In coal mining and washing, the price drop narrowed by 1.2 percentage points and price falls in photovoltaic equipment, battery, and automobile manufacturing narrowed by 1.4, 1.3, and 0.7 percentage points, respectively.

Consumer prices edged up 0.2% from a year earlier, reversing a two-month decline and beating the estimate for no change.

Against the previous month, CPI rose 0.2% in October after rising 0.1% in September and compares with a forecast of no change.

Core inflation, which excludes volatile prices of food and fuel, was up 1.2% year-on-year in October, quickening from the 1% increase in September and hitting a 20-month high.

Food prices fell 2.9% year-on-year, after dropping 4.4% in September. The October price figures indicate that government efforts to rein in excessive competition have helped stabilise prices, but lukewarm domestic demand and geopolitical tensions continue to cloud the business outlook.

"It is too early to conclude the deflation is over," said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management. "We need to wait for a few more months of data to judge if the deflation dynamic has changed fundamentally."

DEFLATIONARY PRESSURES LINGER

China's economic growth slowed to its weakest in a year in the third quarter, and the youth unemployment rate remained elevated despite a dip in September. Policymakers have refrained from aggressive stimulus this year, with the central bank keeping interest rates steady for five months, partly due to resilient exports following a trade truce with the United States.

China has recently unveiled some fiscal and quasi-fiscal policy support measures, but analysts remain divided on whether the central bank will implement further easing measures, such as interest rate cuts, by the end of the year. Last month, China's state planner said 500 billion yuan ($70 billion) in new policy-based financial instruments has been fully allocated, and China has allocated 200 billion yuan in special local government bonds to support investment in some provinces.

China's economy is on track to meet the government's target of around 5% growth this year, but producer deflation, as well as downbeat factory activity and an expected contraction in exports in October, indicate waning growth momentum.

A Reuters poll in October showed China's consumer price inflation will stay flat this year, well below the government's target of around a 2% increase.

Chinese leaders have signalled a sharper shift towards supporting consumption over the next five years, as limited room for investment and trade tensions have exposed vulnerabilities, although measures may take time to yield results.

($1 = 7.1230 Chinese yuan renminbi)

Ventum Financial Corp. www.ventumfinancial.com

Vancouver Office

2500 - 733 Seymour Street

Vancouver, BC V6B 0S6

Ph: 604-664-2900 | Fax: 604-664-2666

For a complete list of branch offices and contact information, please visit our website.

For further disclosure information, reader is referred to the disclosure section of our website.

Why Fundamentals Win Over Headlines in Volatile Times

Tue, 28 Oct 2025 04:00:05 GMT

What if the real threat isn’t the next headline, but reacting to it?

For affluent Canadians, especially entrepreneurs, professionals, and families, the daily flood of market news and noise can feel overwhelming. Yet, over the course of complete news cycles or market cycles, disciplined, fundamental-driven investing tends to outperform reactionary decision-making. The S&P/TSX, as a market, will always rotate through leaders and laggards in the short term, and the Bank of Canada will adjust policy as conditions evolve. What endures is the link between long-term business performance and investor outcomes. Business fundamentals set the climate, while headlines set the daily weather.

Learn more about me and our services here .

The cost of reacting to headlines

Headlines are short-term, while what an investor is attempting to do is build wealth over the long term. Markets digest news quickly, often overshooting in both directions. Investors who chase stories typically underperform the very funds they own because they buy after good news and sell after bad news. In Canada, the effect is amplified by sector concentration. Energy, financials, materials and technology can trade on very different narratives week to week, while the underlying ability to generate cash flows, reinvest smartly and grow dividends unfolds over years.

Reacting to news cycles has proven to be costly. Process beats predictions in the long term. Rather than trying to jump between narratives, the best decision you can make with your investment advisor is to align decisions with factors that match good fundamentals. These factors usually include cash flows, balance sheet strength, returns on capital and management quality. In established funds, these data points can comprise a significant portion of the decision-making process for portfolio managers. Sticking to a process makes it easy to tune out market noise.

Timeless principles that drown out the noise

No matter the news cycle or market cycle, the following principles anchor a portfolio in the reality of process instead of headlines. They work across cycles and conditions, and it is a philosophy we follow for all clients.

Intrinsic value vs. price. Buy businesses or sectors at a discount to what they are worth based on long-term cash flows. Markets, like democracy, are a popularity contest in the short run and a weighing machine in the long run. Intrinsic value, the underlying fundamentals, matters more than chatter.
Margin of safety . The best investment processes build a buffer against errors and volatility from the start by seeking a meaningful discount to conservative value estimates. Advisors can help you spot sector trends for intrinsic value that will enhance your margin of safety buffer, especially over the long run. Margin of safety can often turn market swings into potential opportunities.
Patience and discipline. Missing a handful of strong market days can devastate long-term results. Staying invested has historically fared better than retreating to cash during volatile market swings and then rushing to re-invest later.
Process over prediction. Scheduled rebalancing, valuation discipline and a clear process with your advisor can help you ignore headlines and focus on wealth-building fundamentals.
Position sizing and diversification. Moving into new sectors or industries should always be done strategically, with an eye to overall portfolio diversification. Just because technology could be hot, as the old saying goes, ‘don’t put all your eggs in one basket.’

Steve’s Advice: Have rules you follow in calm and in crisis. Time in the market beats timing the market.

A Canadian market perspective

The Bank of Canada’s rate decisions form an important backdrop for investors, but try not to overrank their importance in wealth building. Changes in the interest rate influence rates of borrowing from mortgages, credit cards and by extension investor expectations. Currency and commodity moves, two aspects within the Canadian investor market that is often the subject of daily news cycles, also shape S&P/TSX earnings profiles. This is due to the index’s heavy exposure to energy and materials. Remember, though, rate changes are not a timing bell. It is just another piece of context for assessing business fundamentals that will affect how competitive positions may evolve.

A good rule of thumb when considering the macroeconomic picture of interest rates, currency fluctuations or commodity swings is to let them inform your process and specifically evaluations of intrinsic value, but do not let them replace the process. In other words, do not look to overhaul your strategy on a single announcement, but look at the long-term assumptions for growth and decide with your advisor on the horizon of opportunity for each sector, index or investment.

Investment review checklist

What is a best practice routine to evaluate an investment or review a portfolio? The following quick checklist is something I follow, and it is straightforward enough for any investor to adopt, especially when assessing during volatility.

Earning power. Do any of the recent developments affect the long-term ability of the sector to generate sales or cash? If not, its noise.
Temporary or Permanent. The market news, even if it does impair a sector, is it temporary or long-term? Lasting impairments to a sector are worth a conversation with your advisor. Temporary could be as long as a couple of years, depending on your personal investment horizon.
Automate Patience. Commit to scheduled re-balancing that limits trade frequency and sell-off directions that tie to this re-balancing and fundamentals, rather than headlines. Discuss how to respond in a 20%+ sell-off in the market at the outset. It might be time to invest more, not less.

Application to real portfolios

For defensive investors, those that are in a protection phase, diversified exposure across Canada and global markets with a trend towards quality and dividends can deliver steadier results without constant changes. Timed re-balancing in this type of portfolio tends to focus on trimming investments that have run ahead and buying what is ‘cheaper’ ultimately reinforcing the buy-low and sell-high behaviour. The net effect, typically, is that fundamentals have time to compound growth while the temptation to react to headlines dwindles.

For more active investors in the process, there should be a clear distinction between intrinsic value and the price. Meaning, if you truly believe in the underlying value of the sector or industry, you should know that price volatility and the businesses’ value can often diverge in the short run. Staying true to the process and original thesis with your advisor often pays more metaphorical dividends than reactionary changes to these during market noise.

Canadian research from long-horizon studies have repeatedly shown that staying invested during the worst days is often the only way to capture the best days that tend to follow. Morningstar’s research on the investor ‘behaviour gap’ shows that many investors trail the very funds they own, due to poor timing. Vanguard Canada has similar illustrated results in their long-term studies.

Keep in mind this simple truth – patience and process are competitive advantages when headlines are loud.

The last word

A fundamentals-first approach is not about predicting the next headline. It is about knowing what you own, what it is worth and deciding with your advisor how or if you should act before markets test your resolve. The principles mentioned above are a practical toolkit any Canadian investor can use to rationalize decisions, reduce ‘timing’ errors and stay aligned with long-term goals.

Steve’s Advice: “Volatility isn’t the enemy, emotion is. Excellence in investing comes from doing ordinary things extraordinarily well, consistently.”

If you are a client, thank you for taking the time to read this, and I look forward to our next conversation. Please feel free to share this with your friends and family who may be considering a move.

If you are looking for a second opinion on your portfolio or wish to have a planning conversation tailored to your needs, book a no-obligation complimentary portfolio review with me today.

Ventum Financial Corp. www.ventumfinancial.com

Vancouver Office

2500 - 733 Seymour Street

Vancouver, BC V6B 0S6

Ph: 604-664-2900 | Fax: 604-664-2666

For a complete list of branch offices and contact information, please visit our website.

For further disclosure information, reader is referred to the disclosure section of our website.

Weekly Economics Report - Sept. 19, 2025

Tue, 23 Sep 2025 17:06:51 GMT

Canada Wholesale Sales Growth Hits Six-Month High

Canada’s wholesale sales climbed 1.2% month-on-month to C$86.0 billion in July 2025, the fastest gain since January, accelerating from an upwardly revised 1.0% increase in June but slightly below market expectations of 1.3%. Four of the seven subsectors posted gains, accounting for roughly three-quarters of total wholesale trade.

The largest increases came from the motor vehicle and motor vehicle parts and accessories subsector (+5.1% to C$15.4 billion), driven by a 5.9% increase in motor vehicle sales, and the building materials and supplies subsector (+2.7% to C$12.1 billion), with all industry groups in the sector contributing, led by a 2.7% increase in lumber, millwork, hardware and other building supplies. These gains were partially offset by a decline in the miscellaneous subsector (-1.5% to C$10.7 billion). Regionally, wholesale sales rose in seven provinces, led by Ontario (+1.5% to C$44.7 billion) and Alberta (+2.6% to C$9.5 billion).

Source: Trading Economics

China’s home prices extend decline, more policy support needed

BEIJING, Sept 15 (Reuters) - China's new home prices fell again in August, extending a prolonged slump in prices as persistently weak demand in the pivotal housing sector remains a drag on economic growth.

Prices slipped 0.3% in August from the previous month, according to Reuters calculation based on data released by the National Bureau of Statistics. The figure matched July's month-on-month decline and extended a weak trend that has persisted since May 2023.

On an annual basis, new home prices dropped 2.5% in August, narrowing from a 2.8% decline in July.

China's real estate sector entered a downturn in 2021. Multiple rounds of stimulus measures, from mortgage rate cuts to launching a programme for renovating urban villages, have so far failed to achieve a sustained turnabout. A spokesperson for the statistics bureau told a press conference on Monday that the property sector was still stabilising, despite some volatility, and more effort was needed to support demand.

The sector, which accounted for about a quarter of economic activity prior to its collapse four years ago, remains a heavy drag on the world's second-largest economy.

Authorities have stepped up efforts to boost consumption and curb price wars to meet Beijing's around 5% growth target in 2025, but deflationary pressures and U.S. tariffs have added to economic headwinds. "Based on current data and market trends, the real estate market is likely to face significant adjustment pressure in the near term," said Zhang Dawei, a property analyst at Centaline.

"The market is anticipating stronger measures to stabilise the housing sector, including easing home purchase restrictions, looser credit policies, and, in particular, a potential interest rate cut on the Loan Prime Rate (LPR) on September 20," Zhang added. Of the 70 cities surveyed, 57 reported month-on-month declines, and 65 recorded year-on-year falls.

Resale prices also weakened. Prices in tier-one cities fell 3.5% year-on-year, while tier-two dropped 5.2% and tier-three prices were down 6.0%.

Separate data showed property investment slumped 12.9% year-on-year in January–August, with property sales by floor area falling 4.7%.

Mainland and Hong Kong property stocks slid in early trading, with the Hang Seng China Mainland Property Index .HSMPI and the CSI 300 Real Estate Index .CSI000952 dropping 2.3% and 0.7%, respectively.

Iron ore futures prices slipped on Monday due to ongoing weakness in China's property sector, even as steel and steelmaking ingredients rose.

Most analysts in a Reuters poll expect home prices to stabilise no earlier than the second half of 2026 or 2027, about half a year later than expectations three months ago.

Weak income expectations, elevated unemployment pressures, and high listings in the secondary market continue to dampen buyer sentiment, particularly in smaller cities burdened with high inventory, analysts say. Households, which saw their wealth shrink in the real estate downturn, have tightened their purse strings while business confidence has faltered, dampening the job market.

In the past few weeks, Shanghai and Shenzhen, two of China's biggest cities, further eased homebuying curbs, scrapping them in some districts for qualified buyers. The central government, meanwhile, kept its policy calls for stabilising the market. Premier Li Qiang said in a meeting in August that China should "adopt forceful measures to consolidate the stabilising trend" in the real estate market and stimulate demand for housing upgrades.

China’s economy slumps in August, casts doubt on growth target

BEIJING, Sept 15 (Reuters) - China's factory output and retail sales reported their weakest growth since last year in August, keeping pressure on Beijing to roll out more stimulus to fend off a sharp slowdown in the world's second-largest economy. The disappointing data split economists over whether policymakers would need more near-term fiscal support to hit their annual growth target of "around 5%," with manufacturers awaiting more clarity on a U.S. trade deal and domestic demand curbed by a wobbly job market and property crisis.

Industrial output grew 5.2% year-on-year, National Bureau of Statistics data showed on Monday, the lowest reading since August 2024 and weaker than a 5.7% rise in July. It also missed forecasts for a 5.7% increase in a Reuters poll. Retail sales, a gauge of consumption, expanded 3.4% in August, the slowest pace since November 2024, and cooling from a 3.7% rise in the previous month. They missed a forecast gain of 3.9%. "The strong start to the year still keeps this year's growth targets within reach, but similar to where we were at this time last year, further stimulus support could be needed to ensure a strong finish to the year," said Lynn Song, chief economist, Greater China at ING.

"While it is too early to gauge the impact of the consumer loan subsidies coming into effect in September, it is likely that more policy support is still needed, given the broader slowdown across the board. We continue to see a high possibility for another 10bp rate cut and 50bp RRR cut in the coming weeks."

Fixed-asset investment also grew at a slower-than-expected 0.5% pace in the first eight months year-on-year, from 1.6% in January-to-July, marking its worst performance outside the pandemic. Authorities are leaning on manufacturers to find new markets to offset U.S. President Donald Trump’s unpredictable trade policy and weak consumer spending.

Separate data this month showed factory owners have had some success diverting U.S.-bound shipments to Southeast Asia, Africa and Latin America, but the drag from the property crisis continues to offset efforts to steady the economy. Zhaopeng Xing, senior China strategist at ANZ, said that while the data showed momentum in the world's second-largest economy was weakening, it was not yet bad enough to trigger a new round of stimulus. "Policies and measures to support service consumption are expected to offset the impact of aggregate demand this month," he said, adding an official crackdown on firms aggressively cutting prices made domestic demand appear worse than it was.

HOUSEHOLD PRESSURE

Chinese households, which have seen their wealth shrink in the real estate downturn, have tightened their purse strings as business confidence falters, dampening the jobs market.Unemployment edged up to a six-month high of 5.3% in August, from 5.2% a month prior and 5.0% in June.

Meanwhile, new home prices fell 0.3% last month from July and 2.5% on an annual basis, a different NBS dataset showed. "We had expected that retail sales growth would have stayed above 4% before September under consumer subsidies, so what happened these months was a disappointment," said Xu Tianchen, senior economist at the Economist Intelligence Unit.

Xu said that China's main economic indicators could worsen over the fourth quarter due to base effects. Officials typically reach for further policy support towards the year end to ensure the economy hits the growth target. "This will raise the likelihood of stimulus in the fourth quarter, including monetary easing, frontloading of debt issuance to this year, and possibly a fiscal expansion," he added.

Zheng Shanjie, head of China's state planner, said last week that Beijing would make full use of fiscal and monetary policies and improve its toolkit to achieve annual targets. Weather has also not helped, with manufacturing activity affected by the hottest conditions since 1961 and the longest rainy season for the same period.

"But there are more fundamental headwinds too, including fading fiscal support and efforts to curtail overcapacity," said Zichun Huang, China economist at Capital Economics. "While the weak data may trigger some additional policy easing over the coming months, the likelihood is that this proves insufficient to turn things around," she added.

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Weekly Economics Report - Aug. 25, 2025

Fri, 19 Sep 2025 19:20:10 GMT

Take Five: Did you say sell tech?

Aug 22 (Reuters) - Nvidia earnings are in the spotlight as pressure on tech stocks rises, while Ukraine and political developments in Japan could also grab attention.

Here's what coming up in the week ahead in financial markets from Lewis Krauskopf and Suzanne McGee in New York, Kevin Buckland in Tokyo, Dhara Ranasinghe in London and Libby George in Minneapolis.

1/ NVIDIA NEXT

Nvidia's August 27 earnings report takes on greater significance after tech shares stumbled this week on some caution over the AI boom. Its dominant position in AI chips has led to another soaring performance in 2025. Last month, it became the first company to top $4 trillion in market value. Any commentary from the AI bellwether related to demand and spending could have broad ramifications for companies exposed to the technology.

Focus could also fall on Nvidia's deal with the Trump administration, which gives the U.S. government 15% of revenue from sales of some advanced chips in China. U.S. Commerce Secretary Howard Lutnick is looking into the government taking equity stakes in Intel and other chipmakers in exchange for grants under a federal act that aims to spur factory-building in the and other chipmakers in exchange for grants under a federal act that aims to spur factory-building in the U.S., sources say.

2/ PRICING IN PEACE

Global defence stocks took a beating on signs that peace could return to Ukraine, although geopolitical analysts caution that it is far too soon to start pricing in a "peace dividend". The sector has been on a tear for most of 2025, as conflicts in the Middle East and Ukraine, and U.S. pressure, prompt governments to bump up defence spending.

That has helped propel stocks like U.S.-based RTX Corp RTX.N, the parent company of defence contractor Raytheon, roughly 35% higher so far this year. The S&P 500 is up 9% .SPX. Germany's Rheinmetall has surged 160% RHMG.DE and Italian aerospace giant Leonardo S.p.A. LDOF.MI is still up 73% even after this week's selloff.

A de-escalation in the war in Ukraine could prompt further selling but not much given the global great power play taking place, strategists say. Given that most countries are viewed as "behind the curve" on defence spending, the sector will remain

in favour.

3/ EXIT STRATEGY

Political paralysis in Japan is putting pressure on the bond market, with 10-year bond yields hitting the highest since 2008, and 30-year yields at all-time peaks. Calls continue for Prime Minister Shigeru Ishiba to step down following a bruising loss in recent upper house elections, but his refusal has kept worries alive about a loosening of fiscal restraint to cater to upand- coming opposition parties.

Things could come to a head next week, with Ishiba's ruling Liberal Democratic Party due to release a fact-finding report on the reasons for the poor poll showing by month-end. Some observers reckon this could provide the timing for a graceful exit, as it also allows Ishiba to clear key diplomatic meetings with South Korea's leader this weekend and India's Narendra Modi a week later.

4/ WATCHING MR. BOND

As the tech selloff grabbed headlines, renewed pressure in bond markets went a little under the radar. German and French 30-year bond yields this week rose to their highest since 2011, Japanese yields are at their highest in years, UK long-dated bonds sold off again and U.S. 30-year yields are hovering near 5%.

Sure, the reasons behind the selling are well established: debt levels are rising, so governments need to sell more bonds. Some such as Japan need to hike rates, others including the U.S. and UK face still sticky inflation.

Some reckon that fast-money types could be starting to position for a crisis. That the selling pressure on bonds continues is, in itself, a worry for governments now forking out meaningful amounts of their income on debt service payments. The selloff could be a harbinger of what comes in September when supply picks up.

5/ HIDE AND SEEK

West Africa's Senegal awaits the results of an International Monetary Fund mission, concluding on Tuesday, to unpick its mammoth hidden debts and move forward. The scale of the hidden debts, which the IMF pegs at $11.3 billion, has ballooned since September 2024, when its then-new leaders first flagged the issue. Note, Mozambique's “tuna bond” hidden debt scandal tallied up to just a few billion.

Investors are watching. A communique could shed light on what the IMF does next, after pushing for better debt reporting across emerging markets for years. Senegal's scandal is a black eye for the Fund, since it had a monitoring programme at the time. The IMF must now balance the need to show consequences for misreporting while avoiding punishing Senegal for openness. Investors hope the Fund will move forward with a long-awaited misreporting waiver after the mission, paving the way for a new programme. Without a waiver, Senegal could have to repay.

MONTHLY NEW RESIDENTIAL SALES, JULY 2025

August 25, 2025 - The U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly announced the following new residential sales statistics for July 2025:

New Home Sales

Sales of new single-family houses in July 2025 were at a seasonally-adjusted annual rate of 652,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.6 percent (±15.5 percent)* below the June 2025 rate of 656,000, and

is 8.2 percent (±14.0 percent)* below the July 2024 rate of 710,000.

For Sale Inventory and Months’ Supply

The seasonally-adjusted estimate of new houses for sale at the end of July 2025 was 499,000. This is 0.6 percent (±1.2 percent)* below the June 2025 estimate of 502,000, and is 7.3 percent (±5.7 percent) above the July 2024 estimate of 465,000. This represents a supply of 9.2 months at the current sales rate.

The months' supply is virtually unchanged (±16.7 percent)* from the June 2025 estimate of 9.2 months, and is 16.5 percent (±19.0 percent)* above the July 2024 estimate of 7.9 months.

Sales Price

The median sales price of new houses sold in July 2025 was $403,800. This is 0.8 percent (±5.9 percent)* below the June 2025 price of $407,200, and is 5.9 percent (±8.5 percent)* below the July 2024 price of $429,000. The average sales price of new houses sold in July 2025 was $487,300. This is 3.6

percent (±8.0 percent)* below the June 2025 price of $505,300, and is 5.0 percent (±8.6 percent)* below the July 2024 price of $513,200.

Source: US Census Bureau

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Weekly Economics Report - Aug. 18, 2025

Mon, 18 Aug 2025 19:03:56 GMT

Canadian housing starts rise 4% in July - CMHC

TORONTO, Aug 18 (Reuters) - Canadian housing starts unexpectedly rose in July, advancing 4% from the previous month, data from the national housing agency showed on Monday.

The seasonally adjusted annualized rate of housing starts rose to 294,085 units from a revised 283,523 units in June, the Canadian Mortgage and Housing Corporation (CMHC) said. Economists had expected starts to fall to 265,000.

US homebuilder sentiment dips back to lowest level since late 2022

Aug 18 (Reuters) - A gauge of U.S. homebuilder sentiment fell unexpectedly in August, slipping back to its lowest level in more than two-and-a-half years, with more than a third of residential construction firms cutting prices and roughly two-thirds of them offering some form of incentive to lure buyers sidelined by still-high mortgage rates and economic uncertainty.

The National Association of Home Builders/Wells Fargo Housing Market Index fell to 32, matching the lowest reading since December 2022, from 33 in July, the association said on Monday. Economists polled by Reuters had expected the sentiment score to improve to 34.

NAHB's measure of current sales conditions declined, and an index tracking future sales expectations was unchanged. Buyer foot traffic, though, edged up to its highest level since May, though it remains at a low level. On a regional basis, sentiment among builders in the Northeast skidded to its lowest level since January 2023, while it was unchanged in the South and Midwest and modestly improved in the West.

"Affordability continues to be the top challenge for the housing market and buyers are waiting for mortgage rates to drop to move forward," said NAHB Chairman Buddy Hughes, a home builder and developer from Lexington, North Carolina. "Builders are also grappling with supply-side headwinds, including ongoing frustrations with regulatory policies connected to developing land and building homes."

Mortgage interest rates have shown recent signs of easing amid expectations the Federal Reserve will resume its interest rate cuts at a policy meeting next month. The average rate on a 30-year fixed-rate mortgage, the most common U.S. home loan, slipped to 6.58% last week, the lowest level since last October, according to data from Freddie Mac. Rates have fallen nearly half a percentage point since the start of the year.

"Given a slowing housing market and other recent economic data, the Fed's monetary policy committee should return to lowering the federal funds rate, which will reduce financing costs for housing construction and indirectly help mortgage interest rates," NAHB Chief Economist Robert Dietz said.

The use of price and other incentives remains high, with 37% of builders cutting prices - by an average of 5% - while 66% offered some form of sales incentive, the highest percentage in the post-COVID-19 era.

On Tuesday the Census Bureau is due to report data for July on ground-breaking volumes and building permit filings for new homes, both of which remain depressed. In June, single-family housing starts fell to an 11-month low and permits for new homes plunged to the lowest level in more than two years. Economists polled by Reuters see little prospect for improvement in July's data.

Take Five: From Anchorage to Jackson Hole

Aug 18 (Reuters) - There seems to be very little standing in the way of stock-market bulls right now, but what follows a U.S./Russia summit in Alaska, a central bank shin-dig in Wyoming and the outcome of Bolivia's election may imbue them with some caution.

Here's what coming up in the week ahead in financial markets from Lewis Krauskopf and Suzanne McGee in New York, Kevin Buckland in Tokyo, Dhara Ranasinghe in London and Libby George in Minneapolis.

1/ BEGINNING OF THE END?

Following Friday's meeting between Donald Trump and Russian President Vladimir Putin, it's the turn of Ukraine's President Volodymyr Zelenskiy and European leaders to meet the U.S. President later on Monday to map out a peace deal.

The fear is Trump could try to pressure Kyiv into accepting a settlement favourable to Moscow. Zelenskiy has already all but rejected the outline of Putin's proposals, including for Ukraine to give up the rest of its eastern Donetsk region, of which it currently controls a quarter.No doubt, markets will be hesitant to price in an end to the war until a ceasefire, at least, is agreed.Europe, meanwhile, is unlikely to embrace Russia, even if peace returns to Ukraine. Defence stocks are likely to remain an investor favourite for now.

2/ JACKSON HOLE-IN-ONE

It's officially summer in financial markets. Q2 earnings are out, the next crop of major economic data isn't until early September and many money managers and traders are heading out to the beaches for a break. There is just one thing to worry about: Jackson Hole. The Wyoming resort plays host to the annual central bankers' schmoozefest and will include Federal Reserve Chair Jerome Powell among its attendees. The conference takes place as stocks hover near record levels, and Trump continues to take pot-shots at Powell.

Jackson Hole has the potential to be disruptive. Any hint from Powell that a September rate cut isn't happening and markets could sell off hard, while an overly upbeat tone from the Fed chair may feed more euphoria. “And bull markets die in euphoria,” says Steve Sosnick, strategist at trading firm IBKR.

3/ STAGFLATION NATION

As global stocks rally, everything from weak U.S. jobs data to trouble at the top of the Federal Reserve has been a reason to bet on U.S. rate cuts, meaning it's not been profitable to be bearish. About 60% of global investors surveyed by BofA think U.S. stagflation could be the dominant global market regime within three months.

A basket of stocks that do well in stagflationary environments, where growth slows as inflation accelerates, has been outpaced by Wall Street's benchmark S&P 500 index .SPX this year, Societe Generale strategists reckon. Next week's business surveys, which can show economic trends months before they appear in official data, will offer more clues about whether U.S. tariffs are driving the world's largest towards stagflation. SocGen, however, expects Fed rate cuts to inflate a stock-market bubble that might not pop until at least

next year.

4/ OUTLIER

With nearly every central bank looking to cut rates to give their economies a soft landing, the Bank of Japan stands apart in its mission to raise borrowing costs - in theory. So, next Friday's inflation data will be in focus for any sign of when the BOJ's long-pledged tightening cycle will resume.

The previous reading of the core consumer price index (CPI) showed an annual 3.3% increase in June, remaining above the BOJ's 2% target for over three years. No bank went harder or longer with quantitative easing than the BOJ. But the long road towards normalisation has been complicated by uncertainty over U.S. tariffs and concerns about whether Japan was seeing the right kind of price increases. BOJ Governor Kazuo Ueda has justified slower rate hikes because underlying inflation, which focuses on domestic demand and wages, remains below the central bank's target.

5/ PICK ME

Centrist senator Rodrigo Paz was leading Bolivia's presidential election late on Sunday. The election kicks off a string of national and local votes across Latin America that extends into late next year, when behemoth Brazil votes to elect a new (or sitting) president. After 2022's "pink tide" brought left leaning governments to power in Chile, Colombia and Brazil, investors want to see if voters will return to more market-friendly right-wingers.

Ahead of the Bolivian election, the country's bonds rallied on hopes that political change could bring the economy back from the brink. Argentina's local elections in September and October are seen as a gauge of the popularity of President Javier Milei's radical economic transformation. Chile votes for a president in November, while next year Colombia elects its congress in March and

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What Carneyonomics Means for Canadian Investors 2025

Sun, 29 Jun 2025 14:16:42 GMT

What happens when a former central banker becomes Prime Minister?

Clarity Returns to Canadian Wealth Planning

For Canadian investors, the answer might just be: predictability. After a turbulent year of tax speculations, Prime Minister Mark Carney has reversed course on the proposed capital gains inclusion rate hike, restoring confidence for investors, small business owners, and professionals.

Carney’s first economic statement not only scrapped the controversial tax increase but signaled a return to fiscal prudence and long-term economic stewardship, akin to his central banker background. As investors reassess their portfolios, the message is clear: policy stability is back and that’s good news for forward-thinking financial planning.

In this article we’ll explore what this reset means for Canadian investors in 2025 from tax interest rate implications and potential sector-specific opportunities, and how you can capitalize on those opportunities by sticking to fundamentals over headlines.

The Capital Gains Reversal that Matters

The most headline-grabbing item from Carney’s first months in office was the reversal of the capital gains inclusion rate hike originally proposed and scheduled under Trudeau. This inclusion would have jumped from 50% to 66.67% for gains above $250,000, threatening passive income strategies, small business exits and intergenerational wealth transfers.

Why this matters for affluent investors?

Business owners now face fewer disincentives to sell or reorganize holdings.
Real estate investors regain confidence in tax-deferred appreciation.
Individuals with significant non-registered portfolios can optimize investment exit strategies without excessive tax burdens.

Actionable insight: Now is the time to revisit capital gain realization schedules. If you had delayed asset sales due to the previous policy environment, the government’s reversal opens a window for more tax-efficient portfolio rebalancing in 2025.

Monetary Stability Returns

As a former Governor of both the Bank of Canada and the Bank of England, Mark Carney brings unmatched monetary policy credentials to his new role. His budget outlines close coordination with the Bank of Canada, aiming for inflation moderation without abrupt interest rate hikes.

What this means for portfolios:

Bond yields may stabilize as inflation expectations cool allowing for more reliable fixed income forecasts by economists.
Investors can deploy laddering strategies in GICs and corporate bonds with potentially less rate shock risk.
Real estate and infrastructure investments benefit from lower borrowing cost volatility.

Actionable Insight: Assess your investment time horizons, otherwise known as your duration exposure. Speaking with your financial advisor to determine if now is the right time to extend your fixed income security maturities or to reinvest in yield-generating alternative investments.

Planning Under a New Stable Regime

Tax consistency and interest rate steadiness provide the foundation for strategic wealth planning, especially in estate planning, intergenerational transfers, and charitable giving.

What advisors should be doing now:

Update family trust structures to reflect the more stable fiscal future.
Revisit any previously enacted estate freezes for business exits or succession under the lower valuation environment of the previous increased capital gains tax rate hike.
Accelerate philanthropic donations using flow-through shares or donor-advised funds based on Carney’s track record as a banker, not to shift too many future rules mid-course.

Actionable Insights: Coordinate with your tax and financial planning experts to lock in consider implementing long-term wealth strategies. The government’s new fiscal clarity makes 2025 a rare opportunity to possibly secure gains without fear of overnight policy reversals.

Opportunities to Invest Where the Government is Spending

Carney’s policy platform prioritizes sustainable growth with major commitments being made to clean energy, AI infrastructure and green housing. With these directions, there are potential unique sector opportunities.

Sectors to watch:

Clean Energy ETFs that are tied to hydrogen, solar or grid storage.
Canadian REITs participating in retrofitting and net-zero construction.
AI & digital infrastructure firms that may benefit from public-private tech investment partnerships.

Actionable Insights: Now may be the time to align part of your portfolio towards these long-term policy-backed growth themes. Ask your advisor about investments with real fundamentals, not just hype, that will stand the test of time and may benefit from federal procurement and funding priorities.

Value Investing Wins in 2025

With a central banker at the helm, we should be able to expect fiscal and monetary policy to regain discipline and speculation begin to fade. With this as a backdrop value investing principles tend to stand out.

Why this philosophy thrives now:

A stable policy environment favours patient, long-term positioning.
Companies with strong balance sheets and durable cash flows tend to outperform in low-growth scenarios.
The emotional market reactions under the first few months of the Trump presidency are cooling off which should allow fundamental analysis to drive returns in the market again.

Whether you are a defensive investor relying on dividend stocks or one hunting discounted opportunities, this philosophy offers a timeless strategy especially in uncertain times.

Actionable Insight: Focus on long-term positions based on intrinsic value over market hype in sectors with long-term growth prospects. This stability window allows you to rebalance and align your portfolio toward undervalued quality assets.

Relative Calm after the Tax Storm

The arrival of Mark Carney, arguably one of the most experienced Finance Prime Ministers ever to be elected in Canada signals a shift in leadership and financial stewardship for the Canadian economy. The true test of this government, undoubtedly, will relieving the housing crisis and keeping inflationary pressure at bay amidst an uncertain trade war with the US. However, from a government tax and investment policy viewpoint, 2025 may be the most stable year in recent memory in which to plan, invest, strategize and grow wealth.

Do not wait for another tax scare, such as the increase in the capital gains inclusion rate, before you set your long-term investment strategy. Take advantage of the favourable policy conditions to strengthen your portfolio’s foundation, evaluate overlooked sectors, and align on fundamentals, not fear.

Ready to Take the Next Step?

If you’re reassessing your strategy in light of Carney’s economic policies or simply want a second opinion, I’d be happy to connect. Strategic advice today could mean greater peace of mind tomorrow.

Steve McBride, Investment Advisor | Ventum Financial, 416.864.3629

Sources :

Bank of Canada – Monetary Policy Overview

Bank of Canada – Financial Stability Report 2025

Canadian Tax Foundation – Capital Gains Taxation in Canada

PMO – Cancellation of the Capital Gains Tax Increase

Forbes – Sustainability Goals Could Reshape Canadian Real Estate

Reuters – Carney and Canadian premiers bid to speed up major projects, cut US reliance

Financial Post – These are the stock market sectors poised to benefit from the Carney era

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Weekly Economics Report - June 28, 2025

Thu, 26 Jun 2025 14:58:38 GMT

US business activity moderates; price pressures building up

WASHINGTON, June 23 (Reuters) - U.S. business activity slowed marginally in June, though prices increased further amid President Donald Trump's aggressive tariffs on imported goods, suggesting that an acceleration in inflation was likely in the second half of the year.

That supports economists' expectations that inflation would surge from June following mostly benign consumer and producer price readings in recent months. Economists have argued that inflation has been slow to respond to Trump's sweeping import duties because businesses were still selling stock accumulated before the tariffs came into effect.

S&P Global's flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, slipped to 52.8 this month from 53.0 in May. A reading above 50 indicates expansion in the private sector.

The survey's flash manufacturing PMI was unchanged at 52.0. Economists polled by Reuters had forecast the manufacturing PMI easing to 51.0. Its flash services PMI dipped to 53.1 from 53.7 in May. Economists had forecast the services PMI falling to 53.0. The survey was conducted in the June 12-20 period, before the U.S. joined in the conflict between Israel and Iran.

"The June flash PMI data indicated that the U.S. economy continued to grow at the end of the second quarter, but that the outlook remains uncertain while inflationary pressures have risen sharply in the past two months," said Chris Williamson, chief business economist at S&P Global Market Intelligence.

So-called hard data on retail sales, housing and the labor market have painted a picture of an economy that was softening because of the uncertainty caused by the constantly shifting tariffs policy. The escalation in tensions in the Middle East added another layer of uncertainty.

INFLATION POISED TO ACCELERATE

The S&P Global survey's measure of new orders received by businesses declined to 52.3 from 53.0 in May. A measure of prices paid by businesses for inputs fell to 61.6 from 63.2 last month. But manufacturers faced higher input costs, with this price gauge jumping to 70.0 this month. That was the highest reading since July 2022 and followed 64.6 in May.

Prices paid for inputs by services businesses remained elevated, with tariffs, higher financing, wage and fuel costs cited. The pace of increase, however, slowed amid competition.

The survey's measure of prices charged by businesses for goods and services remained at lofty levels as manufacturers passed on the increased costs from tariffs to consumers. The prices charged gauge for manufacturers shot up to 64.5, the highest since July 2022, from 59.7 in May.

Rising oil prices because of the strife in the Middle East are seen contributing to higher inflation.

The Federal Reserve last week kept the U.S. central bank's benchmark overnight interest rate in the 4.25%-4.50% range, where it had been since December. Fed Chair Jerome Powell told reporters he expected "meaningful" inflation ahead. "The data therefore corroborate speculation that the Fed will remain on hold for some time to both gauge the economy's resilience and how long this current bout of inflation lasts for," Williamson said.

Employment picked up this month, mostly driven by manufacturing, where some factories are experiencing order backlogs. S&P Global noted a slight rise in optimism among manufacturers "in part reflecting hopes of greater benefits from trade protectionism." It, however, added that "companies generally remained less upbeat than prior to the inauguration of President Trump."

US existing home sales rise in May; mortgage rates still a constraint

WASHINGTON, June 23 (Reuters) - U.S. existing home sales unexpectedly increased in May, but the trend remained weak amid high mortgage rates.

Home sales climbed 0.8% last month to a seasonally adjusted annual rate of 4.03 million units, the National Association of Realtors said on Monday. Economists polled by Reuters had forecast home resales falling to a rate of 3.95 million units.

The sales pace was the slowest for the month of May since 2009.

Sales fell 0.7% on a year-over-year basis in May.

"The relatively subdued sales are largely due to persistently high mortgage rates," said Lawrence Yun, the NAR's chief economist. "If mortgage rates decrease in the second half of this year, expect home sales across the country to increase."

The average rate on the popular 30-year fixed-rate mortgage has hovered just under 7% this year. President Donald Trump's aggressive tariffs on imported goods have heightened uncertainty over the economy, which the Federal Reserve has responded to by pausing its interest rate cutting cycle.

The U.S. central bank last week kept its benchmark overnight interest rate in the 4.25%-4.50% range, where it has been since December. Fed Chair Jerome

Powell told reporters he expected "meaningful" inflation ahead due to the import duties.

A National Association of Home Builders survey on Tuesday showed sentiment among single-family homebuilders plummeted to a 2-1/2-year low in June. The NAHB reported an increase in the share of builders cutting prices to lure buyers, and forecast a decline in single-family starts this year. Residential investment, which includes homebuilding and home sales, contracted slightly in the first quarter after rebounding in 2024 following steep declines in the prior two years caused by a surge in mortgage rates.

The inventory of existing homes increased 6.2% to 1.54 million units in May. Supply surged 20.3% from a year ago. The median existing home price rose 1.3% from a year earlier to $422,800 in May, an all-time high for the month. At May's sales pace, it would take 4.6 months to exhaust the current inventory of existing homes, up from 3.8 months a year ago. A four-to-seven-month supply is viewed as a healthy balance between supply and demand.

Properties typically stayed on the market for 27 days last month compared to 24 days a year ago. First-time buyers accounted for 30% of sales, down from 31% a year ago. Economists and realtors say a 40% share is needed for a robust housing market. All-cash sales constituted 27% of transactions, down from 28% a year ago. Distressed sales, including foreclosures, made up 3% of transactions, up from 2% a year ago.

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Weekly Economics Report - June 20, 2025

Fri, 20 Jun 2025 16:59:29 GMT

Canadian housing starts largely flat in May from April - CMHC

OTTAWA, June 16 (Reuters) - Canadian housing starts were largely flat in May compared with April as a slight rise in groundbreaking in multiple unit urban homes was offset by a marginal drop in starts in single-family detached urban homes, national housing agency data showed on Monday.

The seasonally adjusted annualized rate of housing starts was down 0.2% at 279,510 units from a revised 280,181 units in April, the Canadian Mortgage and Housing Corporation (CMHC) said. Economists had expected starts to fall to 247,500 units last month.

China’s factories slow, consumers unexpectedly perk up

BEIJING, June 16 (Reuters) - China's factory output growth hit a six-month low in May, while retail sales picked up steam, offering temporary relief for the world's second-largest economy amid a fragile truce in its trade war with the United States.

The mixed data comes as China's economy strains under U.S. President Donald Trump's tariff onslaught and chronic weakness in the property sector, with entrenched home price declines showing no signs of reversing. Industrial output grew 5.8% from a year earlier, National Bureau of Statistics data showed on Monday, slowing from 6.1% in April and missing expectations for a 5.9% rise in a Reuters poll of analysts. It was the slowest growth since November last year. However, retail sales rose 6.4%, much quicker than a 5.1% increase in April and forecasts for a 5.0% expansion, marking the fastest growth since December 2023. All up, the numbers failed to convince investors or analysts that anaemic growth would pick up anytime soon with Chinese blue chips .CSI300 erasing very brief gains on Monday.

"The U.S.-China trade truce was not enough to prevent a broader loss of economic momentum last month," Zichun Huang, China Economist at Capital Economics, said. "With tariffs set to remain high, fiscal support waning and structural headwinds persisting, growth is likely to slow further this year."

Data released earlier this month showed China's total exports expanded 4.8% in May, but outbound shipments to the U.S. plunged 34.5% , the sharpest drop since February 2020.

The Asian giant's deflationary pressures also deepened last month.

Supporting retail sales were strong Labour Day holiday spending and a consumer goods trade-in programme that was heavily subsidised by the government. An extended "618" shopping festival, one of China's largest online retail events by sales, started earlier than usual this year, helping lift consumption.

CAUTION AHEAD

Overhanging the activity indicators were persistent headwinds in China's housing sector , with new home prices extending two years of stagnation.

"We find a general pattern that wherever there is stimulus, it works, like the home appliance sales; but wherever there is no stimulus, like the property development, it struggles," said Tianchen Xu, senior economist at the Economist Intelligence Unit.

"There are reasons for more caution going forward, especially regarding private consumption which could see a 'triple whammy' of tightening dining curbs on officials, the end of a front-loaded 618 shopping festival and the suspension of government consumer subsidies." Fixed asset investment expanded 3.7% in the first five months of this year from the same period a year earlier, compared with expectations for a 3.9% rise. It grew 4.0% in the January to April period.

Trump last week said a trade deal that restored a fragile truce in the U.S.-China trade war was done , a day after negotiators from Washington and Beijing agreed on a framework covering tariff rates. That means the U.S. will charge Chinese exports a total of 55% tariffs, he said. A White House official said the 55% would include pre-existing 25% levies on imports from China that were put in place during Trump's first term.

For now, trade woes have not been reflected in employment figures with the urban survey-based jobless rate nudging down to 5.0% in May, from 5.1% previously. Beijing last month rolled out a package of stimulus measures , including interest rate cuts and a major liquidity injection, aimed at shielding the economy from the hit from U.S. tariffs. However, analysts continued to flag challenges for China in hitting its growth target of roughly 5% this year and warned imminent stimulus was unlikely.

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Weekly Economics Report - June 12, 2025

Fri, 13 Jun 2025 16:23:24 GMT

Take Five: It's TACO time

June 6 (Reuters) - Uncertainty from Washington's tariff tactics remains rife, but investors realise that whatever U.S. President Donald Trump threatens doesn't tend to last long before he delays or backs down, meaning recent volatility has ebbed. This tendency to U-turn, dubbed the TACO trade - "Trump Always Chickens Out" - has caught on but it's also given investors something to bank on so they can focus on upcoming reads on inflation and trade.

Here's a look at what's coming up for world markets from Kevin Buckland in Tokyo, Naomi Rovnick and Amanda Cooper in London and Alden Bentley in New York.

1. TACOS FOR BREAKFAST

The high-voltage volatility that shook markets in April and through May has subsided, with investors becoming accustomed to Trump's on-again-off-again approach to anything from tariffs to personal relationships - the meltdown with erstwhile DOGE chief and Tesla Chief Executive Elon Musk being the latest.

Wall Street's fear-gauge, the VIX index, has slipped back below the 20-line that many view as a watermark. Since Trump became the 47th president on January 20, the index has topped 20 on 47 occasions. In the five months prior to that, it breached that level 18 times. In the last month, there have been just seven days when the VIX has popped above 20, compared with every day from April 2 "Liberation Day" to early May.

If anything, the TACO trade is taking some spice out of the market.

2. INFLATION HIDE AND SEEK

Investors are hoping any rise in Wednesday's May consumer inflation report won't be as severe as feared, given Trump's erratic trade tactics. Recent data shows inflation falling close to the Federal Reserve's 2% target . Price pressures in manufacturing and services sectors are picking up, however.

A good gauge of markets' long-term inflation view indicates only moderate concern. The inflation breakeven rate on five-year Treasury Inflation Protected Securities US5YTIP=TWEB suggests investors believe the rate will average less than 0.3 percentage points above the target for the next five years.

The Fed's most recent Beige Book showed economic activity is weakening, while costs and prices are rising across the different regions - a combination policymakers do not want to see. Traders expect the Fed to make no rate change at its June 18 meeting.

3. A RARE DISPUTE

Washington and Beijing's trade spat has brought a familiar issue back to the surface.

China has a stranglehold on global supply of so-called rare earths, critical ingredients in almost every high-tech device out there, from cars to cruise missiles. When China cuts off supply, everything withers.

The auto industry is feeling it. Suzuki 7269.T suspended production of the Swift subcompact, weeks after Ford F.N did the same for its Explorer SUV.

The White House has blasted Beijing for reneging on tariff rollbacks agreed in Geneva last month, but China is doing the same, lambasting the U.S. over revoked student visas and cutting-edge chip curbs.

Chinese trade data on Monday will illuminate what's at stake, while inflation figures that day will show if Beijing's efforts to stoke domestic demand are working.

U.S. and Chinese officials are due to meet in London on Monday to discuss trade and defuse the high-stakes dispute.a

4. A NICE BALANCE

April trade data for the European Union on June 13 could offer a reasonably clean read on where things stood as Trump's on-off tariffs began to roll out.

The EU is firmly in the U.S. president's crosshairs. Trump has said more than once the sole purpose of the EU is to "take advantage" of America, on the grounds that his country boasts a $200 billion trade deficit with the bloc in goods alone, making the EU its second-biggest goods trade partner behind China.

EU sales of cars, steel, pharmaceuticals and luxury goods and apparel among other things are big business. Trump on May 23 said he would impose a 50% tariff on all EU imports, only to back down two days later by delaying the duties by a month after a "very nice call" with European Commission President Ursula von der Leyen.

5. TAX OR OFFEND

Britain, often a prime target for bond vigilantes that attack indebted governments for financial mismanagement, has been pushed into these traders' peripheral vision by U.S. budget concerns .

The Labour government's first spending review on Wednesday could bring the UK back into the spotlight. Even if finance minister Rachel Reeves manages to slash departmental spending, this will merely highlight how few cost-cutting options she has left, Bank of America says.

UK public debt has swelled, leaving Reeves minimal headroom to avoid breaking self-imposed fiscal rules and less able to resist tax hikes.

Still, businesses and borrowers still scarred by the gilt market riot after then Prime Minister Liz Truss' 2022 mini-budget may prefer higher taxes if that lowers the odds of bond vigilantes showing up.

China's May exports slow, deflation deepens as tariffs bite

BEIJING, June 9 (Reuters) - China's export growth slowed to a three-month low in May as U.S. tariffs slammed shipments, while factory-gate deflation deepened to its worst level in two years, heaping pressure on the world's second-largest economy on both the domestic and external fronts.

U.S. President Donald Trump's global trade war and the swings in Sino-U.S. trade ties have in the past two months sent Chinese exporters, along with their business partners across the Pacific, on a roller coaster ride and hobbled world growth.

Underscoring the U.S. tariff impact on shipments, customs data showed that China's exports to the U.S. plunged 34.5% year-on-year in May in value terms, the sharpest drop since February 2020, when the outbreak of the COVID-19 pandemic upended global trade.

Total exports from the Asian economic giant expanded 4.8% year-on-year in value terms last month, slowing from the 8.1% jump in April and missing the 5.0% growth expected in a Reuters poll, customs data showed on Monday, despite a lowering of U.S. tariffs on Chinese goods which had taken effect in early April.

"It's likely that the May data continued to be weighed down by the peak tariff period," said Lynn Song, chief economist for Greater China at ING.

Song said there was still front-loading of shipments due to the tariff risks, while acceleration of sales to regions other than the United States helped to underpin China's exports.

Imports dropped 3.4% year-on-year, deepening from the 0.2% decline in April and worse than the 0.9% downturn expected in the Reuters poll.

Exports had surged 12.4% year-on-year and 8.1% in March and April , respectively, as factories rushed shipments to the U.S. and other overseas manufacturers to avoid Trump's hefty levies on China and the rest of the world.

While exporters in China found some respite in May as Beijing and Washington agreed to suspend most of their levies for 90 days, tensions between the world's two largest economies remain high and negotiations are underway over issues ranging from China's rare earths controls to Taiwan. Trade representatives from China and the U.S. are meeting in London on Monday to resume talks after a phone call between their top leaders on Thursday.

China's imports from the U.S. also lost further ground, dropping 18.1% from a 13.8% slide in April.

Zichun Huang, economist at Capital Economics, expects the slowdown in exports growth to "partially reverse this month, as it reflects the drop in U.S. orders before the trade truce," but cautions that shipments will be knocked again by year-end due to elevated tariff levels.

China's exports of rare earths jumped sharply in May despite export restrictions on certain types of rare earth products causing plant closures across the global auto supply chain.

The latest figures do not distinguish between the 17 rare earth elements and related products, some of which are not subject to restrictions. A clearer picture of the impact of the curbs on exports will only be available when more detailed data is released on June 20.

China's May trade surplus came in at $103.22 billion, up from the $96.18 billion the previous month.

Other data, also released on Monday, showed China's imports of crude oil, coal, and iron ore dropped last month, underlining the fragility of domestic demand at a time of rising external headwinds.

Beijing in May rolled out a series of monetary stimulus measures, including cuts to benchmark lending rates and a 500 billion yuan low-cost loan program , aimed at cushioning the trade war's blow to the economy. China's markets showed muted reaction to the data. The blue-chip CSI300 Index .CSI300 climbed 0.29% and the benchmark Shanghai Composite Index .SSEC was up 0.43%.

DEFLATIONARY PRESSURES

Producer and consumer price data, released by the National Bureau of Statistics on the same day, showed that deflationary pressures worsened last month. The producer price index fell 3.3% in May from a year earlier, after a 2.7% decline in April and marked the deepest contraction in 22 months.

Cooling factory activity also highlights the impact of U.S. tariffs on the world's largest manufacturing hub, dampening faster services growth as suspense lingers over the outcome of U.S.-China trade talks.

Retail sales growth slowed last month as spending continued to lag due to job insecurity and stagnant new home prices.

These headwinds were evident in China's car sales for May, which grew 13.9% year-on-year, slowing from a 14.8% increase the previous month, data from the China Passenger Car Association showed.

Sluggish domestic demand and weak prices have weighed on China's economy, which has struggled to mount a robust post-pandemic recovery amid a prolonged property slump and has relied on exports to underpin growth.

Businesses have also had to adapt to the falling prices. U.S. coffee chain Starbucks SBUX.O said on Monday it would lower prices of some iced drinks by an average of 5 yuan in China.

While the core inflation measure, excluding volatile food and fuel prices, registered a slightly faster 0.6% year-on-year rise, from a 0.5% increase in April, Capital Economics' Huang said the improvement looks "fragile".

She still expects "persistent overcapacity will keep China in deflation both this year and next."

China's forex reserves up $3.6 billion in May, less than expected

BEIJING, June 7 (Reuters) - China's foreign exchange reserves rose by a less-than-expected $3.6 billion in May, official data showed on Saturday, as the dollar continued to weaken against other major currencies.

The country's foreign exchange reserves, the world's largest, rose 0.11% to $3.285 trillion last month, below the Reuters forecast of $3.292 trillion. They were $3.282 trillion in April.

The increase in reserves was due to "the combined effects of factors such as exchange rate conversion and asset price changes," China's State Administration of Foreign Exchange said in a statement.

The yuan CNY=CFXS weakened 1.05% against the dollar in May, while the dollar slid 0.23% against a basket of other major currencies =USD .

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Weekly Economics Report - June 5, 2025

Thu, 05 Jun 2025 16:42:20 GMT

Canada factory PMI rises in May but sector remains in contraction

TORONTO, June 2 (Reuters) - Canadian manufacturing activity contracted for a fourth straight month in May as trade uncertainty led to firms shedding workers at the fastest pace since shortly after the start of the COVID-19 pandemic, data on Monday showed.

The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) edged up to 46.1 in May from 45.3 in April but was stuck below the 50 no-change level for the fourth straight month. A reading below 50 indicates contraction in the sector. “With manufacturers continuing to be hit by tariffs and trade uncertainty, May saw the sector experience a further significant contraction," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement. "The hard to predict nature of trade policies means the outlook for production remains extremely uncertain and given the recent scale of the downturn in the sector, job losses are mounting."

The employment component fell to 44.9 from 47.6 in April, marking the lowest level since June 2020, while measures of output and new orders also remained in contraction. Canada sends about 75% of its exports to the United States, including steel, aluminum and autos which have been hit with hefty U.S. duties. Retaliatory tariffs have been imposed on some U.S. goods.

“Unsurprisingly, tariffs remain the primary source of price pressures, whilst also leading to an intensification of supply side delays," Smith said.

The measure of input prices rose to 63.5 from 62.1 in April, leaving it just below the 31-month peak it touched in March, while the average lead times for the delivery of inputs lengthened for an 11th straight month. The deterioration in vendor performance was linked to port congestion and challenges at customs.

The Future Output Index edged up to 50.9 from 50.4 in April, with some firms hopeful that government policies could help stabilize the macroeconomic environment, but was well below the survey's historical norm, S&P Global said. Canadian Prime Minister Mark Carney, whose Liberal Party retained power in an April election, has proposed sweeping changes to boost economic growth.

US manufacturing remains subdued in May; delivery times lengthening

WASHINGTON, June 2 (Reuters) - U.S. manufacturing contracted for a third straight month in May and suppliers took longer to deliver inputs amid tariffs, potentially signaling looming shortages of some goods.

The Institute for Supply Management (ISM) said on Monday that its manufacturing PMI edged down to a six-month low of 48.5 last month from 48.7 in April. A PMI reading below 50 indicates contraction in the manufacturing sector, which accounts for 10.2% of the economy.

The PMI, however, remains above the 42.3 level that the ISM says over time indicates an expansion of the overall economy. Economists polled by Reuters had forecast the PMI rising to 49.3. The survey suggested manufacturing, which is heavily reliant on imported raw materials, had not benefited from the de-escalation in trade tensions between President Donald Trump's administration and China.

Economists say the on-gain, off-again manner in which the import duties are being implemented is making it difficult for businesses to plan ahead. Another layer of uncertainty was added by a U.S. trade court last week blocking most of Trump's tariffs from going into effect, ruling that the president overstepped his authority. But the tariffs were temporarily reinstated by a federal appeals court on Thursday.

The ISM survey's supplier deliveries index increased to 56.1 from 55.2 in April. A reading above 50 indicates slower deliveries. A lengthening in suppliers' delivery times is normally associated with a strong economy. But in this case slower supplier deliveries likely indicated bottlenecks in supply chains related to tariffs.

In April, the ISM noted delays in clearing goods through ports. Port operators have reported a decline in cargo volumes.

The ISM's imports measure dropped to 39.9 from 47.1 in April. Production at factories remained subdued, while new orders barely saw an improvement.

The ISM survey's forward-looking new orders sub-index inched up to 47.6 from 47.2 in April. Its measure of prices paid by manufacturers for inputs eased to a still-high 69.4 from 69.8 in April, reflecting strained supply chains.

Factories continued to shed jobs. The survey's measure of manufacturing employment nudged up to 46.8 from 46.5 in April. The ISM previously noted that companies were opting for layoffs rather than attrition to reduce headcount.

US Construction Spending Shrinks Again in April

Construction spending in the United States fell by 0.4% month-over-month to a seasonally adjusted annual rate of $2,152.4 billion in April 2025, after a revised 0.8% decrease in March and missing market forecasts of a 0.3% rise. Private sector spending declined by 0.7% in the period, led by a 0.9% drop in non-residential investment and a 0.5% fall in the residential segment. Meanwhile, public spending edged up 0.4%. On a yearly basis, construction spending shrank by 0.5% in April.

Source: Tradingeconomics.com

China’s manufacturing activity contracts amid trade tension

BEIJING, May 31 (Reuters) - China's manufacturing activity contracted in May for a second month, an official survey showed on Saturday, fuelling expectations for more stimulus to support the economy amid a protracted trade war with the United States.

The official purchasing managers' index (PMI) improved slightly to 49.5 in May from 49.0 in April but stayed below the 50-mark separating growth from contraction, in line with a median forecast of 49.5 in a Reuters poll .

On Friday, U.S. President Donald Trump accused China of violating a two-way deal to roll back tariffs and unveiled a doubling of worldwide steel and aluminium tariffs to 50%, once again rattling international trade.

"Recent developments between China and the United States suggest bilateral relations are not improving," said Zhiwei Zhang, chief economist at Pinpoint Asset Management. "Firms in China and the United States with exposure to international trade have to run their business under persistently high uncertainty. It will weigh on the growth outlook in both countries. "The new orders sub-index rose to 49.8 in May from 49.2 in April, while the new export orders sub-index rose to 47.5 from 44.7.

Some firms reported a noticeable rebound in trade with the United States, with improvements in both imports and exports, said senior NBS statistician Zhao Qinghe. The non-manufacturing PMI, which includes services and construction, fell to 50.3 from 50.4, staying above the 50-mark separating growth from contraction. Analysts expect Beijing to deliver more monetary and fiscal stimulus over the coming months to underpin growth and insulate the economy from the tariffs.

Interest rate cuts and a major liquidity injection were among easing steps unveiled by the central bank this month.

Beijing and Washington have agreed to a 90-day pause during which both would cut import tariffs, raising hopes of easing tension, but investors worry negotiations will be slow amid persistent global economic risks.

Trump's decision to single out China in his global trade war has stirred major worries about an economy that has been reliant on an export-led recovery to drive momentum in the face of weak domestic demand and deflationary pressures.

On Monday, rating agency Moody's maintained its negative outlook on China, citing unease over tensions with major trade partners could have a lasting impact on its credit profile.

But it acknowledged that government policy had tackled its previous concerns about the health of state-owned firms and local government debt that prompted a downgrade in late 2023.

China's economy expanded faster than expected in the first quarter, and the government has maintained a growth target of about 5% this year, but analysts fear U.S. tariffs could drive momentum sharply lower. Exports beat forecasts in April, buoyed by demand for materials from overseas manufacturers who rushed out goods to make the most of President Trump's 90-day tariff pause.

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Weekly Economics Report - May 26, 2025

Mon, 26 May 2025 13:33:06 GMT

Canada’s annual inflation rate in April drops to 1.7%, but core measures rise

OTTAWA, May 20 (Reuters) - Canada's annual inflation rate eased to 1.7% in April as energy prices dropped sharply after the removal of a federal consumer carbon tax, but core inflation edged up, Statistics Canada said on Tuesday.

Two of the three core measures of inflation, which are closely watched by the Bank of the Canada, hit 13-month highs on underlying price pressures. Analysts had forecast the annual rate would ease to 1.6%, in April from 2.3% in March.

The Bank of Canada last month predicted it would fall to about 1.5%, mainly due to the removal of the carbon tax and lower crude prices. Overall energy prices plunged 12.7% last month as gasoline prices fell by 18.1% from a year earlier while year-over-year prices for natural gas dropped 14.1%.

Consumers, though, paid 3.8% more for groceries than they had done a year previously, up from 3.2% in March. Year over year, prices for travel tours rose 6.7% in April.

On a month-by-month basis, inflation dipped by 0.1% compared to analysts' forecasts of a 0.2% drop. The Canadian dollar strengthened 0.1% to C$1.3940 to the U.S. dollar, or 71.74 U.S. cents, after the data. It is the penultimate major data release before the Bank of Canada's next scheduled interest rate decision on June 4. Statscan is due to release first quarter GDP figures on May 30. The odds for a rate cut dipped to 48% from 65% before the release, currency swap market bets showed.

After seven consecutive cuts since last June the Bank held rates on April 16 while saying it would be ready to move decisively if needed to keep inflation under control. The bank pays particular attention to the core measures of inflation, which strip out the prices of more volatile items and do not take into account the removal of the carbon tax.

CPI median, which shows the median inflation rate across CPI components, rose from 2.8% in March to 3.2% in April, the highest since March 2024. CPI trim, which excludes upside and downside outliers, edged up from 2.9% to 3.1%, also a 13-month high.

China lowers benchmark lending rates for first time since October

SHANGHAI, May 20 (Reuters) - China cut benchmark lending rates for the first time since October on Tuesday, after Beijing announced sweeping monetary easing measures earlier this month to support the broad economy.

The one-year loan prime rate (LPR) CNYLPR1Y=CFXS was lowered by 10 basis points to 3.0% from 3.1% previously, while the five-year LPR CNYLPR5Y=CFXS was reduced by the same margin to 3.5% from 3.6%.

Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages. Chinese authorities have announced a raft of stimulus measures, including interest rate cuts and a major liquidity injection, as Beijing steps up efforts to soften the economic damage caused by the trade war with the United States.

China struggles to lift home prices as April shows no growth

BEIJING, May 19 (Reuters) - China's new home prices were unchanged in April from a month earlier, official data showed on Monday, extending the no-growth trend to nearly two years despite policymakers' efforts to stabilise the sector.

New home prices stayed the same for a second straight month and have shown no growth since May 2023 as China attempts to lift the real estate sector, once a key driver of the economy, from a prolonged slump. "The property sector remains on a downward path. While many believe we're approaching the bottom, the exact distance remains uncertain," said Zhaopeng Xing, senior China strategist at ANZ.

From a year earlier, prices in April were down 4.0%, a slight improvement from a 4.5% decline last month, according to Reuters calculations based on data from China's National Bureau of Statistics.

Beijing has announced a raft of stimulus measures in recent weeks to bolster the economy amid trade uncertainties with the U.S., including trimming mortgage costs for some buyers to turn around a property crisis that began in 2021. Indebted developers have since struggled to repay their borrowings and deliver pre-sold homes, dampening confidence in the sector.

The April slowdown reflects diminishing policy stimulus effects, the impact of ongoing U.S.-China trade tensions, and seasonal demand contraction following March's traditional peak, said Zhang Dawei, chief analyst at property agency Centaline. "Policy interventions haven't fundamentally altered homebuyers' long-term market perspective," said Zhang. "Persistent economic uncertainty and income instability continue making potential buyers increasingly cautious."

Resale home prices declined across tier-one, tier-two, and tier-three cities on both a monthly and annual basis. Separate official data showed property investment dropped 10.3% year-on-year and sales by floor area shrank 2.8% in January-April.

The head of China's financial regulator promised to roll out more measures to help sustain the "stabilising trend of the property sector" at a high-profile press conference earlier this month. Meanwhile, the central bank cut the interest rate for housing provident fund loans by 25 basis points, effective May 8, reducing borrowing costs for some buyers. "The policy response clearly demonstrates the government's resolve to support real estate. Market participants now await stronger measures to restore confidence and avert further decline," said Centaline's Zhang.

China’s factory output resists tariff impact, retail sales disappoint

BEIJING, May 19 (Reuters) - China's factory output slowed in April but showed surprising resilience, a sign that government support measures may have cushioned the impact of a trade war with the U.S. that threatens to derail momentum in the world's second-largest economy. Industrial output grew 6.1% from a year earlier, National Bureau of Statistics (NBS) data showed on Monday, slowing from 7.7% in March but beat a forecast 5.5% rise in a Reuters poll.

"April's resilience is in part a result of 'frontloaded' fiscal support," said Tianchen Xu, senior economist at the Economist Intelligence Unit, referring to stronger government spending. The data followed firmer-than-expected exports earlier this month that economists said were supported by exporters rerouting shipments and countries buying more materials from China amid a re-ordering of global trade due to U.S. President Donald Trump's tariffs.

However, Monday's data underscored the shock from U.S. reciprocal tariffs, Xu said, adding "despite the rapid growth in industrial value-added, the export delivery value was nearly stagnant."

Beijing and Washington reached a surprise agreement last week to roll back most tariffs imposed on each other's goods since early April. The 90-day pause has put the brakes on a trade war that has disrupted global supply chains and stoked recession fears. "China's foreign trade has overcome difficulties and maintained steady growth, demonstrating strong resilience and international competitiveness," Fu Linghui, statistics bureau spokesperson, told a press conference on Monday. He added that the trade de-escalation would benefit bilateral trade growth and global economic recovery.

But economists have warned that the short-term truce and U.S. President Donald Trump's unpredictable approach will continue to cast a shadow over China's export-driven economy, which still faces 30% tariffs on top of existing duties. By midday, China's blue-chip CSI300 Index .CSI300 dropped 0.4% and the Shanghai Composite Index .SSEC lost 0.1%. The yuan currency also slipped against the dollar.

PRESSURES REMAIN

The property sector has yet to show signs of recovery, with home prices stagnating and investment in the sector shrinking. Retail sales, a measure of consumption, rose 5.1% in April, down from a 5.9% increase in March, and missed forecasts for a 5.5% expansion. Economists attributed the slowdown to the impact of U.S. tariffs on consumer expectations and tepid demand at home.

Commodity sectors also showed signs of weakness with the country's daily crude oil processing rate down 4.9% in April from March, while crude steel output slid 7% month-on-month. Meanwhile, the government's push to boost household spending via a trade-in scheme for consumer goods led to a 38.8% gain in home appliance sales.

The NBS data also showed the unemployment rate fell to 5.1% from 5.2% in March. But anecdotal evidence showed that some factories heavily reliant on the U.S. market have sent their workers home. With persistent deflationary pressures and worse-than-expected bank lending data, economists highlighted the need for more policy support to foster a sustainable recovery.

"We caution that the near-term growth strength is at the cost of payback effects later and believe more policy easing is necessary to stabilise growth, employment and market sentiment," Goldman Sachs economists said in a note.

China's economy expanded 5.4% in the first quarter, exceeding expectations. Authorities remain confident of achieving Beijing's growth target of around 5% this year, despite warnings from economists that U.S. tariffs could derail this momentum. Alarmed by how tariffs have hurt economic activity, authorities earlier this month announced a package of stimulus measures , including interest rate cuts and a major liquidity injection.

The monetary easing measures were announced before the China-U.S. trade detente was reached after high-stakes talk in Geneva, marking a significant de-escalation from months of mounting tensions. The U.S.-China "deal" agreed at the start of last week will provide some relief, said Julian Evans-Pritchard, head of China Economics at Capital Economics, "but even if the tariff rollback proves durable, wider headwinds mean that we still expect China's economy to slow further over the coming quarters.""We suspect that the trade war has made households more concerned about their job prospects and therefore more careful about their spending."

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Weekly Economics Report - May 18, 2025

Sun, 18 May 2025 13:02:49 GMT

US import prices unexpectedly rise in April

WASHINGTON, May 16 (Reuters) - U.S. import prices unexpectedly rose in April as a surge in the cost of capital goods offset cheaper energy products.

Import prices gained 0.1% last month after dropping 0.4% in March, the Labor Department's Bureau of Labor Statistics said on Friday. Economists polled by Reuters had forecast import prices, which exclude tariffs, would decrease 0.4%. In the 12 months through April, import prices edged up 0.1%.

Data this week showed benign consumer and producer price readings in April. Economists expect the impact of President Donald Trump's sweeping import duties to become evident in inflation data by the middle of this year. The tariffs have raised fears of a slowdown in global growth, contributing to a dampening of oil prices.

Federal Reserve Chair Jerome Powell warned on Thursday that "we may be entering a period of more frequent, and potentially more persistent, supply shocks - a difficult challenge for the economy and for central banks."

Economists expect the U.S. central bank will resume cutting interest rates either in September or December. The Fed left its benchmark overnight interest rate in the 4.24%-4.50% range earlier this month.

Imported fuel prices fell 2.6% in April after decreasing by 3.4% in March. Food prices were unchanged after dipping 0.1% in the prior month. Excluding fuels and food, import prices shot up 0.5%. That followed a 0.1% dip in March. In the 12 months through March, the so-called core import prices increased 0.8%. Prices for imported capital goods jumped 0.6%, while those of consumer goods excluding motor vehicles increased 0.3%. Prices for imported motor vehicles, parts and engines rose 0.2%.

The weakness of the dollar is likely contributing to the firmness in these import prices.

Trump's aggressive trade policies have rattled investors' confidence in the dollar, leading to a sharp fall in U.S. assets. The trade-weighted dollar is down about 5.1% this year, with most of the depreciation occurring in April.

US single-family housing starts, building permits fell in April

WASHINGTON, May 16 (Reuters) - U.S. single-family homebuilding fell in April as tariffs on imported materials and high mortgage rates remained major obstacles for the housing market.

Single-family housing starts, which account for the bulk of homebuilding, dropped 2.1% to a seasonally adjusted annual rate of 927,000 units last month, the Commerce Department's Census Bureau said on Friday.

President Donald Trump's aggressive and erratic tariffs, including duties on lumber and steel, have left builders reeling. The United States and China de-escalated their trade war over the weekend, but uncertainty remains over what happens after the 90-day truce they agreed on. There is also no clarity on the fate of country-specific duties which were delayed until July.

A National Association of Home Builders survey on Thursday showed sentiment among single-family homebuilders plunged to a 1-1/2-year low in May, with 78% of builders reporting "difficulties pricing their homes recently due to uncertainty around material prices." There is also a glut of unsold new homes, with inventory at levels last seen in late 2007.

Permits for future construction of single-family housing declined 5.1% to a rate of 922,000 units in March. Residential investment, which includes homebuilding, rebounded in 2024 after steep declines in the prior two years caused by a surge in mortgage rates. It grew at a moderate pace in the first quarter of 2025.

University of Michigan Survey of Consumers

Consumer sentiment was essentially unchanged this month, inching down a scant 1.4 index points following four consecutive months of steep declines. Sentiment is now down almost 30% since January 2025. Slight increases in sentiment this month for independents were offset by a 7% decline among Republicans. While most index components were little changed, current assessments of personal finances sank nearly 10% on the basis of weakening incomes.

Tariffs were spontaneously mentioned by nearly three-quarters of consumers, up from almost 60% in April; uncertainty over trade policy continues to dominate consumers’ thinking about the economy. Note that interviews for this release were conducted between April 22 and May 13, closing two days after the announcement of a pause on some tariffs on imports from China. Many survey measures showed some signs of improvement following the temporary reduction of China tariffs, but these initial upticks were too small to alter the overall picture – consumers continue to express somber views about the economy. The initial reaction so far echoes the very minor increase in sentiment seen after the April 9 partial pause on tariffs, despite which sentiment continued its downward trend.

Year-ahead inflation expectations surged from 6.5% last month to 7.3% this month. This month’s rise was seen among Democrats and Republicans alike. Long-run inflation expectations lifted from 4.4% in April to 4.6% in May, reflecting a particularly large monthly jump among Republicans. The final release for May will reveal the extent to which the May 12 pause on some China tariffs leads consumers to update their expectations.

Source: University of Michigan

Foreigners sell C$4.23 bln in Canadian securities in March

May 16 (Reuters) - Foreign investors sold a net C$4.23 billion ($3.03 billion) in Canadian securities in March, led by federal equity securities, following an downwardly revised C$10.45 billion total sale in February, Statistics Canada said on Friday. Canadian investors bought a net C$15.63 billion worth of foreign securities, led by purchases of U.S. government bonds.

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Weekly Economics Report - May 12, 2025

Mon, 12 May 2025 11:38:46 GMT

Canada’s unemployment rate jumps to 6.9% in April as Trump tariffs bite

OTTAWA, May 9 (Reuters) - Canada's unemployment rate rose to 6.9% in April, the highest since November, as U.S. tariffs started to hit Canada's export-dependent economy in earnest, data showed on Friday.

The high unemployment rate in Canada, where the number of jobless people is inching towards 1.6 million, was partly a result of U.S. President Donald Trump's tariffs on a raft of Canadian imports, Statistics Canada said, referring to the jobs shed in the manufacturing sector.

Overall, the employment number was largely flat with minimal gains of net 7,400 jobs in April, it said. This was in contrast to a loss of 32,600 jobs the prior month.

Analysts polled by Reuters had predicted employment to increase by 2,500 people and the unemployment rate to increase to 6.8%. The 6.9% figure matched November unemployment, which was an eight-year high outside of the pandemic era.

Trump's tariffs on Canadian steel and aluminum in March and automobiles in April, along with import duties on a broad range of products with various reductions and exemptions have impacted businesses and households.

The Bank of Canada has warned that growth would take a major hit in coming months as exports fall, prices increase, hiring reduces and layoffs accelerate. It has vowed to act decisively if the economy needs urgent support. "Overall, we are seeing a job market that was weak heading into the trade war, now looking like it could soon buckle. Today's report supports the case for a Bank of Canada cut in June," said Ali Jaffery, senior economist at CIBC Capital Markets.

BETS ON JUNE RATE CUT

Currency swap market bets show odds of a 25 basis point rate cut in June at over 55% roughly. 0#CADIRPR

The Canadian dollar CAD= was trading up 0.1% to 1.3909 U.S. dollar, or 71.90 U.S. cents. Yields on two-year government bonds CA2YT=RR fell 3.3 basis points to 2.586% after the labor force data was released.

The number of unemployed people, or those looking for work or on temporary layoff, increased by 39,000 or 2.6% in April, and was up by 189,000 or 13.9% on a year-over-year basis. "People who were unemployed continued to face more difficulties finding work in April than a year earlier," Statscan said, adding that among those who were unemployed in March, 61% remained unemployed in April which was almost four percentage points higher than the same period last year.

The tariffs and the uncertainty around them especially hit the manufacturing sector which shed 31,000 jobs in the month, Statscan said, adding retail and wholesale trade also saw a drop in the number of employed people.

The employment rate, or the proportion of the working age population that is employed, was at 60.8% in April, following a decline of 0.2 percentage points in March. This was a six-month low, the statistics agency said.

The employment rate had been depressed for most of 2023 and 2024 as population growth outpaced employment gains. However, since February population growth has not been very high but employment gains have slowed.

Employment in the public sector increased by 23,000 or up 0.5% in April, following three consecutive months of little change, especially due to increased temporary hiring for the federal election. The average hourly wage growth of permanent employees, a metric closely watched by the Canadian central bank to gauge inflationary trends, was at 3.5% in April, same as March.

China’s exports top forecasts helped by global rush to beat tariffs

BEIJING, May 9 (Reuters) - China's exports beat forecasts in April, buoyed by demand for materials from overseas manufacturers who rushed out goods to make the most of U.S. President Donald Trump's 90-day tariff pause.

The world's two largest economies have been locked in a bruising tit-for-tat tariff war and businesses on both sides of the Pacific will be looking for some kind of resolution at closely watched trade talks in Switzerland this weekend. Customs data on Friday showed outbound shipments from China rose 8.1% year-on-year in April, beating a forecast 1.9% increase in a Reuters poll of economists but slowing from the 12.4% jump in March.

Trump announced sweeping "reciprocal tariffs" of 10% on April 2, before offering a pause for most countries while the White House worked on multiple trade deals. China, however, was excluded from the reprieve and singled out for levies of 145%, kicking off a protracted cat-and-mouse game that has rattled global markets and upended supply chains.

Chinese manufacturers had also been front-loading outbound shipments in anticipation of the duties, but are now banking on ice-breaker tariff talks between American and Chinese officials in Geneva on Saturday. Imports fell 0.2%, compared with expectations for a 5.9% drop, suggesting domestic demand may be holding up better than expected as policymakers continue to take steps to prop up the $19 trillion economy.

"The ASEAN countries are speeding up their production to meet the July deadline, the 90-day negotiation break. Their production is highly reliant on China's exports in raw materials and industrial inputs, so China's exports got support," said Dan Wang, China director at Eurasia Group.

"Over the next two months, China's exports could continue to be strong due to industrial capacity relocation, but the trade data could deteriorate quite quickly if the 145% tariffs on China are still in place and ASEAN countries' talks (with the Trump administration) don't make progress," she added.

Exports to Southeast Asian countries rose 20.8% in April.

China's exports to the U.S., meanwhile, fell 21%. That meant the trade surplus with the U.S. dropped to $20.5 billion from $27.6 billion in March, a win for Trump, who has repeatedly said he wants to narrow the gap.

HIGH STAKES

Beijing cannot afford a trade war with the U.S. but sees Trump's tariffs as unwelcome interference, with officials wanting to implement the painful domestic reforms needed to shore up long-term growth at their own pace. If not lowered or removed, the tariffs could deal a heavy blow to China's economy, which has relied on exports to drive growth as it struggles to recover from the pandemic shocks and a protracted property market slump.

"The damage of the U.S. tariffs has not shown up in the trade data for April," said Zhiwei Zhang, chief economist at Pinpoint Asset Management. "I expect the trade data will weaken in the next few months gradually." "Hopefully, the trade negotiations between China and the U.S. can reach agreement soon and bring down tariffs to mitigate the shock to global trade," he added.

Beijing has in the past few months reiterated its confidence that China could achieve the "around 5%" growth target for the year, and rolled out measures to bolster consumption and support the country's exporters.

A slew of monetary stimulus measures , including liquidity injections and cuts to policy rates, was announced on Wednesday in a bid to ease tariff hits on the economy.For now, the trade sector's momentum is still riding on the global scramble to make the most of Trump's brief tariff relief.

China's steel exports topped 10 million metric tons for a second straight month in April, as top customers like South Korea and Vietnam bought in bulk to outrun the tariffs, which analysts expect to disrupt China's lucrative transhipment trade.

With global copper producers rushing stocks to the U.S. after Trump proposed slapping levies on the metal, China's imports of unwrought copper and copper products remained unchanged last month.

Soybean imports plunged to a 10-year low in April, but this was due to prolonged customs clearance delays and late Brazilian shipments caused by harvest slowdowns and logistics issues.

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Weekly Economics Report - April 28, 2025

Mon, 28 Apr 2025 12:06:16 GMT

Carney pledges tax cuts, defense spending in Canada election platform

TORONTO, April 19 (Reuters) - Canadian Prime Minister Mark Carney's campaign platform plans released on Saturday include tax cuts and new spending on infrastructure and defense, as he pledges a new economic order that is less reliant on the United States.

Carney has campaigned on his experience managing crises while running the central bank of Canada during the 2008 financial crisis and that of Britain during Brexit. He often says he is the best person to stand up to U.S. President Donald Trump, who has imposed tariffs on Canada and threatened to annex the country.

"We're in an enormous crisis, so we have to be able to do two things. One, hold down on that wasteful spending, which we will do, but much more than that, we need to be bold and drive investment in the economy and take the amazing opportunities we have," Carney said at a press conference.

Carney has also aimed to distance himself from predecessor Justin Trudeau by promising a leaner government.

Carney's plan would push the federal government's deficit to 1.96% of Gross Domestic Product (GDP) in the 2025-26 fiscal year, down to 1.83% of GDP the following year, and to 1.35% by 2028-29, the platform says. Trudeau's government had last forecast a deficit of 1.6% of GDP for the previous fiscal year that ended in March.

Carney plans to break up spending into operating and capital spending, which would be new in Canada. Carney told the press conference government spending had been growing by around 9% every year and his government would bring that rate of spending growth to around 2% without cutting any transfers to provinces, territories or individuals. He promised to balance the operating budget over the next three years. "Our plan gets government spending under control because the government has been spending too much and Canada has been investing too little," Carney said. Carney plans to increase defense spending to exceed a NATO target of 2% of GDP and said Canada would invest in transatlantic security with "like minded" European partners.

China keeps lending rates steady; trade war raises bets for stimulus

WHY IT’S IMPORTANT

SHANGHAI, April 21 (Reuters) - China kept benchmark lending rates steady on Monday for the sixth successive month, matching market expectations.

Stronger-than-expected first-quarter economic growth data might have reduced the urgency for immediate monetary easing even as markets wager more stimulus is likely in coming months to keep growth on an even keel amid an intensifying Sino-U.S. trade war. Policymakers are also wary of a weakening Chinese yuan and shrinking interest margins at lenders, limiting the scope for easing.

BY THE NUMBERS

The one-year loan prime rate (LPR) CNYLPR1Y=CFXS was kept at 3.1%, while the five-year LPR CNYLPR5Y=CFXS was unchanged at 3.6%.

In a Reuters poll of 31 market participants conducted last week, 27, or 87%, expected no change to either of the rates.

CONTEXT

China's gross domestic product ( GDP ) grew 5.4% in the first quarter, beating expectations, but markets fear a sharp downturn in the year ahead as U.S. tariff policies pose the biggest risk to the Asian powerhouse in decades.

Export data was yet to capture the impact of higher U.S. tariffs as many factories front-loaded their orders to beat the duties, analysts said.

A string of global investment banks have lowered their projections for China's economic growth this year and expected more monetary easing measures to underpin the economy.

KEY QUOTES

** Xing Zhaopeng, senior China strategist at ANZ, said the steady LPR fixings suggested that policymakers remain in a wait-and-see mode.

"The impact of tariffs is mainly on exports. Given the sound economic growth in the first quarter, it may be easier to introduce targeted measures for export companies," Xing said.

** "The LPR is not seen moving without a cut to the seven-day reverse repo rate first," economists at ING said in a note. "Low inflation and strong external headwinds amid escalating tariff threats provide a strong case for easing. But currency stabilisation considerations may prompt the People's Bank of China to wait until the U.S. Federal Reserve cuts borrowing costs."

Foreign direct investment in China falls 10.8% in January-March

BEIJING, April 18 (Reuters) - Foreign direct investment in China totalled 269.2 billion yuan ($36.86 billion) from January to March, down 10.8% from the same period last year, the commerce ministry said on Friday.

Consumer sentiment fell for the fourth straight month, and has now lost more than 30% since December 2024 amid growing worries about trade war developments that have oscillated over the course of the year. Consumers report multiple warning signs that raise the risk of recession: expectations for business conditions, personal finances, incomes, inflation, and labor markets all continued to deteriorate this month.

Source: Tradingeconomics.com

China warns countries against striking trade deals with US at its expense

BEIJING, April 21 (Reuters) - China on Monday accused Washington of abusing tariffs and warned countries against striking a broader economic deal with the United States at its expense, ratcheting up its rhetoric in a spiralling trade war between the world's two biggest economies. Beijing will firmly oppose any party striking a deal at China's expense and "will take countermeasures in a resolute and reciprocal manner," its Commerce Ministry said.

The ministry was responding to a Bloomberg report, citing sources familiar with the matter, that the Trump administration is preparing to pressure nations seeking tariff reductions or exemptions from the U.S. to curb trade with China, including imposing monetary sanctions. President Donald Trump paused the sweeping tariffs he announced on dozens of countries on April 2 except those on China, singling out the world's second largest economy for the biggest levies .

In a series of moves, Washington has raised tariffs on Chinese imports to 145%, prompting Beijing to slap retaliatory duties of 125% on U.S. goods, effectively erecting trade embargoes against each other. Last week, China signalled that its own across-the-board rates would not rise further.

"The United States has abused tariffs on all trading partners under the banner of so-called 'equivalence', while also forcing all parties to start so-called 'reciprocal tariffs' negotiations with them," the ministry spokesperson said.

China is determined and capable of safeguarding its own rights and interests, and is willing to strengthen solidarity with all parties, the ministry said.

"The fact is, nobody wants to pick a side," said Bo Zhengyuan, partner at China-based policy consultancy Plenum. "If countries have high reliance on China in terms of investment, industrial infrastructure, technology know-how and consumption, I don't think they'll be buying into U.S. demands. Many Southeast Asian countries belong to this category."

Pursuing a hardline stance, Beijing will this week convene an informal United Nations Security Council meeting to accuse Washington of bullying and "casting a shadow over the global efforts for peace and development" by weaponizing tariffs. Earlier this month, U.S. Trade Representative Jamieson Greer said nearly 50 countries have approached him to discuss the steep additional tariffs imposed by Trump.

Several bilateral talks on tariffs have taken place since, with Japan considering raising soybean and rice imports as part of its talks with the U.S. while Indonesia is planning to increase U.S. food and commodities imports and reduce orders from other nations.

CAUGHT IN CROSSFIRE

Trump's tariff policies have rattled financial markets as investors fear a severe disruption in world trade could tip the global economy into recession.

On Monday, Chinese stocks inched higher, showing little reaction to the commerce ministry comments, though investors have generally remained cautious on Chinese assets due to the rising growth risks.

The Trump administration also has been trying to curb Beijing's progress in developing advanced semiconductor chips which it says could be used for military purposes, and last week imposed port fees on China-built vessels to limit China's dominance in shipbuilding.

AI chip giant Nvidia said last week it would take $5.5 billion in charges due to the administration's curbs on AI chip exports. China's President Xi Jinping visited three Southeast Asian countries last week in a move to bolster regional ties, calling on trade partners to oppose unilateral bullying.

Beijing has said it is "tearing down walls" and expanding its circle of trading partners amid the trade row.

The stakes are high for Southeast Asian nations caught in the crossfire of the Sino-U.S. tariff war, particularly given the regional ASEAN bloc's huge two-way trade with both China and the United States. Economic ministers from Thailand and Indonesia are currently in the United States, with Malaysia set to join later this week, all seeking trade negotiations.

Six countries in Southeast Asia were hit with tariffs ranging from 32% to 49%, threatening trade-reliant economies that have benefited from investment from levies imposed on Beijing by Trump in his first term. ASEAN is China's largest trading partner, with total trade value reaching $234 billion in the first quarter of 2025, China's customs agency said last week. Trade between ASEAN and the U.S. totalled around $476.8 billion in 2024, according to U.S. figures, making Washington the regional bloc's fourth-largest trading partner. "There are no winners in trade wars and tariff wars," Xi said in an article published in Vietnamese media, without mentioning the United States.

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Weekly Economics Report - April 14, 2025

Sun, 13 Apr 2025 13:10:10 GMT

US monthly producer prices decline in March

WASHINGTON, April 11 (Reuters) - U.S. monthly producer prices unexpectedly fell in March amid a sharp decline in the cost of energy products, but tariffs on imports are expected to drive inflation higher in the coming months.

The producer price index for final demand dropped 0.4% last month after an upwardly revised 0.1% gain in February, the Labor Department's Bureau of Labor Statistics said on Friday.

Economists polled by Reuters had forecast the PPI rising 0.2% after a previously reported unchanged reading in February.

In the 12 months through March, the PPI increased 2.7% after advancing 3.2% in February.

While President Donald Trump this week delayed reciprocal tariffs on trade partners for 90 days, he boosted duties on Chinese goods to 125%. Beijing on Friday hit back with a 125% tariff of its own. A 10% blanket duty on almost all U.S. imports remains in place as does a 25% tariff on motor vehicles, steel and aluminum.

The anticipated surge in inflation could, however, be tempered somewhat by softening domestic demand, evident in March's consumer price report that showed monthly declines in airline fares as well as hotel and motel room prices.

The tariffs, which have hammered financial markets and boosted consumers' inflation expectations, have raised the odds of a recession in the next 12 months. Consumer and business sentiment have also tanked.

Minutes of the Federal Reserve's March 18-19 meeting published on Wednesday showed policymakers were nearly unanimous that the economy faced risks of simultaneously higher inflation and slower growth.

Financial markets expect the U.S. central bank to resume cutting interest rates in June after pausing in January, and reduce its policy rate by 100 basis points this year. The Fed's benchmark overnight interest rate is currently in the 4.25%-4.50% range.

US Consumer Sentiment Falls Sharply

The University of Michigan consumer sentiment for the US plunged to 50.8 in April 2025, the lowest level since June 2022 from 57 in March, well below forecasts of 54.5, preliminary estimates showed.

Source: Tradingeconomics.com

All about tariffs: Five questions for the ECB

LONDON, April 11 (Reuters) - The European Central Bank meets on April 17 with all focus on what tariff chaos means for how much further policymakers will need to cut rates.

U.S. President Donald Trump first announced reciprocal tariffs around the world, including 20% on the European Union, last week before suddenly dialling back those duties on Wednesday for a 90-day period, whipsawing financial markets. The resulting additional time to negotiate has barely relieved jittery markets and the outlook hasn't become any more certain. "It will be very interesting how they (the ECB) walk that fine line between acknowledging what needs to be acknowledged without putting too stressed a tone to it," said Morgan Stanley chief European economist Jens Eisenschmidt.

Here are five key questions for markets:

1/ Will the ECB cut rates next Thursday?

Most likely. Traders fully price a 25-basis-point cut, bringing the ECB's deposit rate to 2.25% next Thursday, a move they had seen as more of a coin toss before catching on that Trump's reciprocal tariffs were really on the way. Policymakers had previously looked more divided on an April cut, but several have since suggested that tariff developments have strengthened the case for a move.

2/ How will Trump's latest tariffs impact growth and inflation?

Hard to say, given negotiations ahead. But even with the 90-day reprieve, the EU is still being hit by a broad 10% tariff, not to mention higher rates on steel, aluminium and cars, so they will certainly hurt growth.

Before Trump's U-turn on Wednesday, ECB sources told Reuters a previous estimate of a 0.5-percentage-point hit to growth in the first year was too low and could even exceed 1 percentage point, which would wipe out all expected growth for 2025. The impact on inflation is more ambiguous and will depend on the degree of retaliation against Trump's tariffs and, longer term, on how fragmented global trade becomes.

But for now, oil prices have tanked 15% this month, the euro is up over 9% since the start of March while China, the biggest source of EU imports, is taking the biggest hit from tariffs, all pointing to further disinflation. "There is an across-the-board downward revision to the growth forecast and also because the euro has been so strong, which helps dampen inflation, (the ECB) can in the short-term focus on growth," said Principal Asset Management chief global strategist Seema Shah.

3/ So will the ECB have to speed up rate cuts?

Markets sure think so. Traders now expect the ECB to cut rates twice more this year after Thursday. That's quite a change, given they had seen less than a full chance of another move this year and priced in the chance of a 2026 hike when the bank last convened in March. But economists see a more modest path. The median expectation in a Reuters poll was for just one further cut, putting rates at 2% in the second half of the year. "The fundamental problem, that we are facing very high uncertainty as to what type of economic policy we can expect out of the U.S., that has not gone away," said Morgan Stanley's Eisenschmidt, a former ECB economist.

4/ Will German stimulus come to the rescue?

Not yet. Germany's historic debt-rule overhaul to ramp up infrastructure and defence spending is seen as a game changer for the European economy, but it will take time to feed through. "The economic impact of German fiscal spending is a story for 2026, not 2025," said Simon Wells, HSBC's chief European economist.

5/ How concerned is the ECB about financial stability?

Policymakers don't seem alarmed yet, but have stepped up their monitoring of banks and markets. Euro zone bonds have also swung, but been less volatile than U.S. Treasuries, while the gap in borrowing costs between poorer member states and Germany, Europe's largest economy, has not widened to worrying levels.

But the ECB remains concerned that financial stress could spread from non-financial entities to regular lenders in periods of market stress. Hedge funds unwinding some debt-laden bets is thought to have played a role in recent volatility. "I expect them (the ECB) to say they are ready to act if volatility in the market is unjustified by the fundamentals," said Gregoire Pesques, fixed income chief investment officer at Europe's largest asset manager Amundi.

Indeed, ECB chief Christine Lagarde said on Friday the bank is ready to deploy its instruments to maintain financial stability and has a solid track record in devising new tools when required.

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Stick to Your Plan When Markets Get Noisy

Fri, 11 Apr 2025 12:32:27 GMT

What if the real danger to your portfolio isn’t the next headline—but your reaction to it?

We live in a world where market-moving headlines arrive faster than you can refresh the website page or social media feed you are viewing. Whether it’s a new round of tariffs, a shift in trade policy, or an unexpected political development, volatility has become the norm. For high-net-worth individuals, business professionals, and entrepreneurs in Canada, that volatility often prompts one of two reactions: panic or paralysis.

But seasoned financial advisors and their clients know something different. They know that in the face of uncertainty, timeless principles matter more than timely news. Let’s explore how a disciplined value investing strategy provides clarity amid chaos and how it might be the most powerful way to navigate today’s turbulent markets.

Reality versus Perception

Misinformation, disinformation, and propaganda are buzzwords not only in the political arena, but they have also come home to roost in our everyday lives. Do you know the most common myths in the stock market today?

Here are some of the financial myths that may not be all they seem:

Wait it out: Many people feel that when volatility arrives, it's better to pull their investments and wait out the storm in safety. However, for investors with longer horizons, it may be better to leave their money invested: “Since 1974, the S&P 500 returns over 24% on average following a correction.”
Timing the Market: If you feel the right choice is to sell off when there is volatility and that you will be able to ‘time the market’ on the way back up, the reality may shock you. There is an overwhelming body of evidence and empirical data that proves otherwise. According to Morningstar’s “Mind the Gap” study in 2021, investors over the long term realized 1.7% lower returns when they tried to time the market.
Expect 10% Returns Every Year: Of course, over the very long term, the annualized average return on the stock market has been 10%. YET, why is it that the S&P 500 has only hit this average 8 times since 1926? The answer is that there is no such thing as a ‘typical’ year that matches this long-term average. The only way to get there is by staying invested over a long time period.

A Climate of Uncertainty

The Trump presidency has ushered in a new era of economic nationalism in the US. The US-China trade war, broad tariffs threatened on Canada, and even reciprocal tariffs on every country in the world from the US have led to wide-reaching consequences for global supply chains and investor sentiment. These were not just geopolitical moves, they were market-shaping events.

The fallout from this has been whipsawing stock prices, as a rise in protectionist rhetoric and policies globally add a persistent cloud of uncertainty over global markets. The temptation for investors to react emotionally has never been greater. However, if you have read my previous missives, you would know that while headlines may move markets in the short term, fundamentals drive long-term value.

Why Fundamentals Matter More Than Headlines

At the core of value investing is a simple but powerful idea: buy businesses for less than they are worth and hold them long enough for that value to be realized. Here are some of those principles:

Intrinsic Value vs. Market Price – since the market is a popularity contest in the short-term, it is also true that it is a weights scale in the long-term. What a company is trading for today is not necessarily what it’s worth. Value investing is about identifying that disconnect.
Margin of Safety – for clients that have been investing over the long term and staying invested, your margin of safety provides a defense against market volatility. Buying undervalued stocks provides a buffer against downturns.
Mr. Market Analogy – refers to how the market is an emotional business partner trying avidly to buy or sell shares at wildly different prices every day. By staying invested, you cut out this noise and just worry about the end horizon.
Fundamentals Over Speculation – timing the market, day trading, and a host of other short-term activities are often seen as speculative guesswork. Whereas fundamental analysis is equated to long-term due diligence. It's imperative in this market to do a deep dive into fundamentals, especially as the world markets go through upheaval.

Don’t Stay on the Sidelines

You have stayed invested, but are concerned about putting more money into the volatility of the market? Apply value investing principles to take action and find value in today’s market, by:

Finding Intrinsic Value in a Shaky Market – companies that have become undervalued because they are out of favour provide opportunities.
Use the Margin of Safety – as mentioned above, build in an extra buffer when searching for new opportunities. This extra discount allows room for error and usually better long-term outcomes.
Avoid the Trap – again, do not worry about timing the market; it’s a gamble. Stick to your principles and look for opportunities that will translate into a sound purchase over the long-term.
Patience as Discipline – for investing, patience is a virtue and a skill. Disciplined investors bide their time to avoid trends that may go out of favour quickly in a volatile market, to search for value.

Defensive vs. Enterprising Investor Strategies

Your investing temperament and time commitment should guide your approach, considering that value investing allows for both types of investors. Here is how each type of investor would apply value investing in their strategies:

A Defensive Value Investor:

Diversifies across low-cost, value-driven ETFs
Focuses on dividend-paying stocks and blue-chip names with strong financials
Sticks to broad fundamentals and avoids chasing headlines or trends.

An Enterprising Value Investor:

· Explores underappreciated sectors affected by trade tensions such as manufacturing or technology with overseas exposure

· Researches businesses temporarily hit by policy shifts but with resilient models and strong fundamentals
· Is prepared to hold through volatility to realize value.

Ask your advisor to help you understand which type of investor you are and how to approach these difficult times before considering a full pullout.

There is Always Risk

No strategy or investment philosophy is immune to risk, including value investing. Here are some common risks to watch out for in value investing:

Value Traps – sometimes it's on sale for a good reason. This is why researching fundamentals is important to determine if they support a recovery and not a continued decline.
Policy Persistence – are the geopolitical changes and policies of this administration going to outlive your investment time horizon? You may still need to adjust and having a financial advisor can help you make the right choice for your situation.
Backward-Looking Data – just looking at last year’s earnings may not be enough to assess a company’s value. Evaluating a company’s management adaptability and its business model resilience especially during volatility is important to see into a blind spot.

Finally, Volatility Isn’t the Enemy, Emotion Is

I firmly believe enduring investment success doesn’t come from reacting to the news cycle. It comes from trusting a proven process that is grounded in investment fundamentals. Value investing is about providing results for those with the discipline to stay the course.

Lastly, as markets will continue to remain noisy and our narratives shift, remember that volatility is not something to fear, but for the patient and disciplined investor, it’s something to use.

Looking to make a change, want a second opinion, or looking for additional advice? Feel free to reach out to me any time by phone or email.

Steve McBride, Investment Advisor, Ventum Financial, looks forward to connecting with you about your future wealth management needs.

Sources :

Weekly Economics Report - April 4, 2025

Mon, 07 Apr 2025 19:36:53 GMT

Canada sees drop in total jobs in March for first time in over three years, unemployment rate up

OTTAWA, April 4 (Reuters) - Canada's total employment fell and the unemployment rate ticked up in March, data showed on Friday, as the uncertainty around tariffs and their subsequent implementation took a toll on hiring and spurred some layoffs.

The country's employment number dropped by a net 32,600 people, the first decrease in more than three years, driven by a steep decline in full-time work, Statistics Canada said.

The decline in March followed largely flat growth in jobs in February and robust expansion of 211,000 new jobs from November to January. The unemployment rate rose to 6.7% from 6.6% a month earlier.

Analysts polled by Reuters had forecast a net job addition of 10,000 people and had estimated the unemployment rate to rise to 6.7%.

Most economists had expected the job market to start showing signs of weakening as companies held back on investments and hiring due to the uncertain tariff situation.

U.S. President Donald Trump imposed a 25% tariff on Canadian steel and aluminum from March and slapped import duties on cars and parts based on non-U.S. content and non-compliance to a free trade deal. He also announced sweeping reciprocal tariffs across all trading partners. These reciprocal tariffs and retaliation by many countries are expected to hit the global economy hard, pushing many countries into recession, analysts have said.

CHINA RETALIATES

The Canadian dollar CAD= was trading down 0.72% to 1.4194 to the U.S. dollar, or 70.45 U.S. cents, after China imposed retaliatory tariffs on the United States .

Currency markets are betting that there is a 62% chance of yet another rate cut by the Bank of Canada on April 16, a sharp turn from just a 25% chance seen a day earlier. 0#CADIRPR .

The rise in the unemployment rate, or the number of people unemployed as a percentage of the labor force, was the first increase since November, Statscan said. In total, there were 1.5 million unemployed people in March, up 36,000 in the month and up 167,000 on a year-over-year basis, it said.

The Bank of Canada said last month that Canadians were more worried about their job security and financial health as a result of the trade tensions, and they intend to spend more cautiously.

Statscan said that among the total unemployed, about 44% had lost their job due to a layoff within the previous 12 months. Of these, 18.4% last worked in construction, while 12.4% last worked in wholesale or retail trade. However it clarified that the March layoff rate - the proportion of the employed population in a given month who were unemployed the following month due to a layoff - was 0.7%, similar to the pre-pandemic period. The average hourly wage growth of permanent employees, a metric closely watched by the BoC too gauge inflationary trends, was at 3.5% in March from 4% in February.

US job growth beats expectations in March

WASHINGTON, April 4 (Reuters) - The U.S. economy added far more jobs than expected in March, but President Donald Trump's sweeping import tariffs could test the labor market's resilience in the months ahead amid sagging business confidence and a stock market selloff.

Nonfarm payrolls increased by 228,000 jobs last month after a downwardly revised 117,000 rise in February, the Labor Department said in its closely watched employment report on Friday. Economists polled by Reuters had forecast payrolls advancing by 135,000 jobs after a previously reported 151,000 rise in February. Estimates ranged from 50,000 to 185,000.

The unemployment rate rose to 4.2% from 4.1% in February. The labor market is being underpinned by low layoffs, generating solid wage gains that are helping to sustain the economic expansion.

But businesses have been hesitant to hire because of an uncertain trade policy. That caution could give way to job cuts after Trump unveiled on Wednesday a 10% minimum tariff on most goods imported into the U.S., unleashing threats of retaliation and rattling global financial markets.

Economists estimated that Trump's sweeping import duties had boosted the nation's effective tariff rate to the highest level in more than a century. They warned of snarled supply chains and high prices, culminating in layoffs as spending by both households and consumers retrenches. Trump's tariffs blitz since returning to the White House has already unnerved businesses, who had cheered his electoral victory in November. The report could offer some short-term relief to financial markets roiled by the import duties.

Data and sentiment surveys have suggested the economy stalled in the first quarter because of trade policy uncertainty and winter storms. Gross domestic product growth estimates for the first quarter are below a 0.5% annualized rate, with high odds of a contraction. Economists are not ruling out a recession in the next 12 months.

They expect the effects of the reciprocal tariffs could be evident as soon as with April's employment report. Retail payrolls are most likely to decline as consumers hunker down amid price increases. Financial market expect the Federal Reserve to resume cutting interest rates no later than June after pausing its policy easing cycle in January. U.S. central bank officials last month projected two interest rate cuts this year. The Fed's policy rate is currently in the 4.25%-4.50% range.

China hits back hard in global trade war with tariffs on US goods

BEIJING/WASHINGTON/BRUSSELS, April 4 (Reuters) - China announced additional tariffs of 34% on U.S. goods on Friday, the most serious escalation in a trade war with President Donald Trump that has fed fears of a recession and triggered a global stock market rout.

In the standoff between the world's top two economies, Beijing also announced controls on exports of some rare earths and filed a complaint at the World Trade Organisation.

It added 11 entities to the "unreliable entity" list, which allows Beijing to take punitive actions against foreign entities, including firms linked to arms sales to democratically governed Taiwan, which China claims as part of its territory.

Nations from Canada to China have readied retaliation in a mounting trade war after Trump raised U.S. tariff barriers to their highest level in more than a century this week, leading to a plunge in world financial markets .

Investment bank JP Morgan said it now sees a 60% chance of the global economy entering recession by year end, up from 40% previously.

U.S. stock futures fell sharply on Friday, signaling more losses on Wall Street, after China retaliated with fresh tariffs a day after the Trump administration's sweeping levies knocked off $2.4 trillion from U.S. equities.

"China comes out swinging with an aggressive response to Trump's tariffs," said Stephane Ekolo, Market & Equity Strategist, Tradition, London.

"This is significant and is unlikely to be over, hence the negative market reactions. Investors are afraid of a 'tit for tat' trade war situation."

Shares of Big Tech stocks fell in premarket trading, with companies such as Apple AAPL.O and Nvidia NVDA.O having big exposure to China and Taiwan for manufacturing their products.

In Japan, one of United States' top trading partners, Prime Minister Shigeru Ishiba said the tariffs had created a "national crisis" as a plunge in banking shares on Friday set Tokyo's stock market on course for its worst week in years.

U.S. Secretary of State Marco Rubio on Friday disputed any economic crash, telling reporters that markets were reacting to the change and would adjust.

"Their economies are not crashing. Their markets are reacting to a dramatic change in the global order in terms of trade," he said at a press conference in Brussels. "The markets will adjust."

DIVISIONS AND MIXED SIGNALS

With European shares also heading for the biggest weekly loss in three years, the European Union's trade commissioner Maros Sefcovic will speak to U.S. counterparts. "We will not shoot from the hip – we want to give negotiations every chance to succeed to find a fair deal, to the benefit of both sides," he said on social media.

The EU is divided on how best to respond to Trump's tariffs, including on use of its 'Anti-Coercion Instrument', which allows the bloc to retaliate against third countries that put economic pressure on EU members to change their policies.

Countries that are cautious about retaliating and thereby raising the stakes in the standoff with the U.S. include Ireland, Italy, Poland and the Scandinavian nations.

French President Emmanuel Macron led the charge on Thursday by calling on companies to freeze investment in the U.S.

However, French Finance Minister Eric Lombard later cautioned against like-for-like countermeasures on the U.S. tariffs, warning this would also rebound on European consumers.

"We are working on a package of responses that can go well beyond tariffs, in order, once again, to bring the U.S. to the negotiating table and reach a fair agreement," Lombard said in an interview with broadcaster BFM TV. There were conflicting messages from the White House about whether the tariffs were meant to be permanent or were a tactic to win concessions, with Trump saying they "give us great power to negotiate."

The U.S. tariffs could jack up the price for U.S. shoppers of everything from cannabis to running shoes to Apple's iPhone . A high-end iPhone could cost nearly $2,300 if Apple passes the costs on to consumers, based on projections from Rosenblatt Securities.

Businesses have raced to adjust. Automaker Stellantis STLMA.MI said it would temporarily lay off U.S. workers and close plants in Canada and Mexico, while General Motors GM.N said it would increase U.S. production.

China is retaliating for Trump's 54% tariffs on imports from the world's No. 2 economy. The European Union faces a 20% duty.

"Others have maybe learned their lessons (from Trump's last term)," said Eddie Kennedy, head of Bespoke Discretionary Fund Management, Marlborough, London. "They are fighting back and saying we can play the same game as you and we are more in a position of strength to negotiate."

Other trading partners, including Japan, South Korea, Mexico and India, said they would hold off on any retaliation for now as they seek concessions. Britain's foreign minister said it was working to strike an economic deal with the United States.

Trump says the "reciprocal" tariffs are a response to barriers put on U.S. goods, while administration officials said the tariffs would create manufacturing jobs at home and open up export markets abroad, although they cautioned it would take time to see results.

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Weekly Economics Report - Mar 15, 2025

Sun, 16 Mar 2025 13:50:52 GMT

China's deflationary pressures deepen in February

BEIJING, March 9 (Reuters) - China's consumer price index in February missed expectations and fell at the sharpest pace in 13 months, while producer price deflation persisted, as seasonal demand faded and households remained cautious about spending amid job and income worries.

Beijing last week vowed greater efforts to boost consumption in the face of an escalating trade war with the U.S., but analysts expect deflationary pressures in the world's second-largest economy to drag on.

The government set the 2025 economic growth target at around 5%, unchanged from last year, while lowering the annual inflation target to around 2% from around 3% last year.

The consumer price index (CPI) fell 0.7% last month from a year earlier, reversing January's 0.5% increase, data from the National Bureau of Statistics (NBS) showed on Sunday.

It was the first contraction in the index since January 2024, and worse than a 0.5% slide estimated by economists in a Reuters poll."China's economy still faces deflationary pressure. While sentiment was improved by the developments in the technology space, domestic demand remains weak," said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.

As exports face risks from the trade war, fiscal policy needs to become more proactive, he said, noting that China's property sector also continues to struggle. "Monetary policy also needs to be loosened further with interest rate and reserve requirement ratio cuts, as indicated by the government work report."

Core CPI, excluding volatile food and fuel prices, fell 0.1% in February, the first fall since January 2021.

Food prices fell 3.3% last month, versus a 0.4% rise in January. Lunar New Year celebrations, the country's biggest annual holiday, fell in late January compared with February last year, leading to higher food prices and tourist-related services prices in January.

NBS statistician Dong Lijuan said in a note on Sunday that the high base of last February's CPI brought about the fall of the index last month: "If excluding the impact of the different months of the Lunar New Year, CPI rose by 0.1% year-on-year in February."

On a month-on-month basis, CPI fell 0.2%, against a 0.7% rise in January and below a predicted 0.1% drop.

To revive sluggish household demand, China has doubled its allocation to an expanded consumer subsidy program for electric vehicles, home appliances and other goods to 300 billion yuan ($41.42 billion) this year.

But more profound measures to address its incomplete welfare system are still some way off, leaving consumers and businesses wary of spending amid a sputtering economic rebound. The main problems lie in "weak consumption capacity and willingness," Commerce Minister Wang Wentao said on Thursday on the sidelines of the annual parliamentary meeting.

In this year's government work report unveiled on Tuesday, consumption was mentioned 31 times, up from 21 last year, surpassing references to technology. The producer price index fell 2.2% on-year in February, easing from a 2.3% slide in January and the smallest contraction in six months, but missing the forecast 2.1% decline.

China's producer prices have been falling since September 2022.

Global tariff threats and industrial overcapacity at home are pushing Chinese exporters into price wars all over the world, forcing many of them to cut prices of their products and wages.

China's property sector is showing positive changes, minister says

BEIJING, March 9 (Reuters) - China's property sector is showing positive changes and market confidence is improving, its housing minister said on Sunday, as policymakers try to set a more optimistic tone for the economy this year in the face of mounting U.S. trade pressure.

The comments come after several tough years for the once high-flying real estate sector, with property investment slumping the most on record last year and property sales and new construction falling at a double-digit pace, weighing heavily on economic growth.

At a press conference on the sidelines of an annual parliament meeting in Beijing, housing minister Ni Hong said that "since January and February, the real estate market maintained a positive trend of stopping declines and returning to stabilisation."

China will not release early 2025 figures for housing sales and starts until March 17, but analysts at Nomura said in a recent note that sales and prices early this year were holding up better than expected in China's biggest cities.

Still, analysts polled by Reuters last month expect home prices to drop further this year and do not expect a market recovery until 2026.

Some analysts estimate average home prices have slumped by 20-30% since a peak in August 2021. That sparked severe cash crunches and led to incomplete projects, developer debt defaults and even public protests by homebuyers, hammering market sentiment.

Signs of stabilisation or even a mild rebound in the property market could help cushion China's economy from the impact of mounting U.S. trade tariffs on Chinese goods.

With 70% of household wealth held in real estate, which at its peak accounted for about a quarter of the economy, consumers have kept their wallets shut tight amid growing economic uncertainty.

Official data showed on Sunday that deflationary pressures deepened last month, as households remained cautious about spending amid job and income worries.

China will step up lending for so-called "whitelist" projects to help qualified developers with more financial support, and expand the scale of urban village renovation after a million units were renovated last year, Ni said.

The government's 2025 work report released last week by Premier Li Qiang said that sustained efforts are needed to stabilize the real estate market and prevent further declines. Li also pledged to push forward the construction of safe, green and intelligent "good houses".

Euro zone investor morale brightens substantially in March

FRANKFURT, March 10 (Reuters) - Investor morale in the euro zone brightened substantially in March, with economic expectations hitting their highest reading since July 2021, a survey showed on Monday, as Germany's plans for new debt contributed to the positive sentiment.

The overall Sentix index for the currency union shot up to -2.9 in March from -12.7 in February, beating expectations from analysts polled by Reuters for a rise to -8.4.

The indicator focused on economic expectations for the next six months rose for a third time in a row to 18.0 in March from 1.0 the month before, according to the survey.

The survey of 1,097 investors from March 6-8 also showed the assessment of the current situation improved to -21.8 in March from -25.5 in February.

The survey cited new debt-financed investments planned for armament in Europe and in Germany, where a newly forming government wants to bump up defence and infrastructure, as behind the bump.

"For Germany, investors are downright euphoric," Sentix said in a statement about Europe's largest economy.

Expectations for Germany alone jumped by 26.3 points, to 20.5, and the overall index rose by 17.2 points to -12.5, it added.

The picture was different in other parts of the world, Sentix noted. In the United States, there was a massive slump in current situation and expectations values.

Trump won't predict whether recession could result from his tariff moves

WASHINGTON, March 9 (Reuters) - President Donald Trump declined to predict whether the U.S. could face a recession amid stock market concerns about his tariff actions on Mexico, Canada and China over fentanyl.

The Republican president, whose trade policies have rekindled fears of worsening U.S. inflation, was asked if he expected a recession this year in a Fox News interview broadcast on Sunday. "There is a period of transition, because what we're doing is very big. We're bringing wealth back to America," Trump told the "Sunday Morning Futures" program. "It takes a little time, but I think it should be great for us."

Tariffs have been one key concern for investors, as many believe they can harm economic growth and be inflationary. While Trump acknowledged as early as February 2 that his sweeping tariffs could cause some "short-term" pain for Americans, his own advisers have repeatedly downplayed any negative impact.

"Absolutely not," Commerce Secretary Howard Lutnick said on Sunday. "There's going to be no recession in America." Lutnick did acknowledge that the Trump tariffs would lead to higher prices for U.S. consumers on some foreign-made goods, but said American products will get cheaper. "He's not going to step off the gas," Lutnick said on NBC's "Meet the Press."

Trump imposed new 25% tariffs on imports from Mexico and Canada last Tuesday, along with fresh duties on Chinese goods, after he declared the top three U.S. trading partners had failed to do enough to stem the flow of deadly fentanyl and its precursor chemicals into the United States.

Two days later, he exempted many imports from Mexico and some from Canada from those tariffs for a month, the latest twist in a fluctuating trade policy that has whipsawed markets and fanned worries about U.S. inflation and growth.

It was the second time in two months that Trump has walked back fentanyl-related tariffs on the U.S. neighbors. "If fentanyl ends, I think these will come off. But if fentanyl does not end, or he's uncertain about it, he will stay this way until he is comfortable," Lutnick said. White House officials say Canada and Mexico are conduits for shipments of fentanyl - which is 50 times more potent than heroin - and its precursor chemicals into the U.S. in small packages that are often not inspected.

Public data shows 0.2% of all fentanyl seized in the U.S. comes from the Canadian border, while the vast majority arrives via Mexico. In a concession to Trump, Canada appointed a new fentanyl czar last month.

The exemptions for the two largest U.S. trading partners expire on April 2, when Trump has threatened to impose a global regime of reciprocal tariffs on all U.S. trading partners.

Kevin Hassett, director of the White House's National Economic Council, said on ABC's "This Week" that he hoped the drug-related tariffs can be resolved by the end of the month so the focus can be on imposing the reciprocal measures.

TRADE CONFUSION

Seesaw tariff announcements have unnerved Wall Street as investors say flip-flopping moves by the Trump administration to roll back levies on trading partners are causing confusion rather than bringing relief. The Trump trade policies have raised fears of trade wars that could slam economic growth and raise prices for Americans still smarting from years of high inflation.

China said it would "resolutely counter" pressure from the United States on the fentanyl issue after Trump imposed tariffs of 20% on all imports from China. Democratic senators from two border states criticized Trump's tariff policy as inconsistent and irresponsible.

"These broad, indiscriminate and on-again, off-again tariffs don't help anyone. They don't help farmers. They don't help auto workers. They're a mistake," U.S. Senator Adam Schiff of California said on ABC. "Pounding Canada as if they're the exact same thing as China - it just creates this chaotic feeling," U.S. Senator Elissa Slotkin, of Michigan, said on NBC.

Trump said he put a hold on tariffs on some goods last week because, "I wanted to help Mexico and Canada," according to the "Sunday Morning Futures" interview, which was taped on Thursday.

The three countries are partners in a North American trade pact that was renegotiated by Trump during his first White House term. Yet Trump also told the Fox News program that those 25% tariffs "may go up" and he said on Friday that his administration could soon impose reciprocal tariffs on Canadian lumber and other products.

Separately, U.S. tariffs of 25% on imports of steel and aluminum will take effect as scheduled on Wednesday, Lutnick said during the interview. Canada and Mexico are both top exporters of the metals to U.S. markets, with Canada in particular accounting for most aluminum imports.

Source: tradingeconomics.com , LSEG Workspace, Ventum Financial

Strategic Planning for a Trade War

Wed, 12 Mar 2025 20:11:11 GMT

How Canadian Investors Can Safeguard Their Wealth

There’s a new economic reality. Global trade tensions continue to rise and disrupt global markets, creating economic uncertainty for Canadian high-net-worth individuals business leaders, and professionals. Tariffs, supply chain disruptions, and currency fluctuations can erode investment portfolios, alter tax structures, and impact your long-term financial plans.

For those with significant wealth, business interests, assets tied to global markets, or even just a significant portion of investments outside of Canada, strategic financial planning is no longer an option–it’s essential. The question is: How can you proactively safeguard and grow your wealth amid prolonged economic volatility?

In exploring economic impacts on Canada, diversification strategies, tax efficient planning, business resilience options, and retirement planning adjustments, you can position yourself for financial stability and long-term success.

The Economic Impact of a Trade War

With President Trump on a trade war path, announcing tariffs on Canada, Mexico, China, and the European Union (EU), the effects will be felt directly and in ripple effects that will not always be visible on the surface. It is yet to be seen if he will move ahead with all of these threats, but as of writing this blog, he has confirmed a 25% general tariff on Canada and Mexico to take effect on March 4 ^th . As a major trading nation, Canada is particularly vulnerable to these disruptions in international trade.

Expect these Key Economic Risks:

Currency Fluctuations: A weaker Canadian dollar due to market uncertainty will drive up import costs impacting businesses and investment returns.
Market Volatility: Stock markets are already experiencing turbulence as individual and institutional investors react to trade policy changes tied to global industries and equities.
Industry-Specific Disruptions: Sectors in manufacturing, technology and even real estate may face shifting demand as supply chain bottlenecks due to increased tariffs and trade restrictions play havoc on supply chain management.

According to the Bank of Canada, economic uncertainty related to the trade war has already reduced business investment and slowed GDP growth and outlook for Canada.

Diversify, Diversify, Diversify

Something I have always advocated with my clients is one of the prime investment philosophies of value investing is simply diversification, which actually has tangible benefits that are felt over the long term.

Diversification Strategies:

International Equities : Is it time to invest outside Canada and the US? Have you looked at the EU market or further afield? It is time to do so.
Alternative Assets : Beyond the stock market, there are other investments that may have less volatility, or you may be able to gain access to these alternatives through current investment products.
Safe-Haven Investments : Bonds, hedge funds, and low-volatility dividend stocks can help offset large market swings.

During previous economic volatility periods, many investors who looked to treasury bonds, gold, or indexes in these areas saw reduced volatility. This should be a natural part of your portfolio and already built in. I can help you adjust your portfolio for a long-term view.

Tax-Efficient Wealth Planning

Tariffs and inflation increase the cost of doing business and alter wealth preservation strategies. This is even more critical to address during shifting trade policies that may impact corporate or personal tax structures. Are you being proactive?

Key Tax Considerations:

Capital Gains Optimization: Strategically realizing gains or losses on evolving tax laws as a result of trade wars can often help minimize liabilities.
Corporate Tax Structuring: If you own a business, exploring tax-efficient structures to reduce the impact of changing trade regulations is critical to profitability.
Inflation-Proof Estate Planning: Higher inflation erodes purchasing power, which requires adjustments in your estate planning and wealth transfer strategies.

How You Can Stay Ahead

Maximize Tax-Deferred Accounts – take full advantage of RRSPs and TFSAs if you haven’t already.
Optimize Business Tax Structures – by incorporating strategies, if available, such as income splitting and trust structures to protect generational wealth.
Utilize Strategic Gifting – by leveraging tax-efficient charitable donations and family trusts to mitigate estate taxes.

Business Resilience: Navigating Global Volatility

Entrepreneurs and business leaders must adapt to the evolving trade dynamics to ensure their companies remain resilient, protecting their own wealth, but also the livelihoods of those they employ.

The Challenges for Canadian Business Owners

Tariff-Driven Cost Increases: Expect higher import/export costs as tariffs squeeze profit margins.
Supply Chain Vulnerabilities: Dependence on international supplies could not lead to significant delays and, therefore, increased costs.
Changing Consumer Demand: The spending habits of consumers are affected by economic uncertainty, inflation and higher prices which may require altered business revenue models.

Strengthening Your Business

Supplier Diversification – will reduce dependency on a single market supplier offering new partnerships across multiple regions.
Hedging Against Currency Risk – with financial instruments to reduce the damage of large currency swings.
Government Incentives & Grants – to take full advantage of federal and provincial support programs to offset trade-related challenges.

Retirement & Estate Planning in a Shifting Economy

Long-term financial planning should always account for volatility and understand that you can never effectively ‘time the market’. Effective retirement and estate planning has hopefully positioned you well by adjusting your portfolios to avoid major market fluctuations if you are near retirement. For those with a horizon of 10 years or more, smart planning is usually better than smart investing.

Retirement Planning Considerations

Market Fluctuations: Volatility can come from multiple directions, including trade policies.
Inflation Risks: Rising costs due to trade policies can erode retirement purchasing power and have long-lasting consequences.
Interest Rate Uncertainty: Changing monetary policies influence fixed-income investments such as bonds and annuities.

Strategies to Protect Retirement Wealth

Reassess Portfolio Risk – as it never hurts to make adjustments based on new market realities.
Optimize Withdrawal Strategies – by adjusting withdrawal rates to preserve assets in downturns.
Explore Alternative Retirement Income Streams – such as rental properties, dividend income, and annuities, which can provide stability.

Conducting a financial stress test to evaluate your retirement resilience in different scenarios provides peace of mind.

A prolonged trade war presents financial challenges to Canadian Investors, but those who take a strategic approach can safeguard their wealth through adjustments and new opportunities. Hopefully, these key considerations and strategies offer conversation starters for you and your advisor during these volatile times.

Looking to make a change, want a second opinion, or looking for additional advice? Feel free to reach out to me any time by phone or email.

Author Steve McBride, Investment Advisor, Ventum Financial, looks forward to connecting with you about your future wealth management needs.

Sources :

Weekly Economics Report - Mar 7, 2025

Sun, 09 Mar 2025 22:53:37 GMT

Canadian factory PMI tumbles as tariff uncertainty hits sentiment

TORONTO, March 3 (Reuters) - Canadian manufacturing activity contracted for the first time in six months in February as an uncertain trade outlook led to firms turning the most pessimistic since the start of the COVID-19 pandemic.

The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) fell to 47.8 from 51.6 in January, its first move below the 50.0 no-change mark since August. A reading below 50 indicates contraction in the sector. "The considerable uncertainty related to tariffs being applied on all goods passing across the Canada-United States border weighed heavily on the manufacturing economy during February," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.

"Output fell noticeably, driven lower by a steeper decline in new orders as product markets, both at home and abroad, were paralysed by concerns over the applicability and size of tariffs in the coming months. "The output index fell to 47.5 from 52.3 in January and the new orders index was at 45.4, its lowest level since July. U.S. President Donald Trump has proposed 25% tariffs on Mexican and Canadian goods that are due to go into effect on March 4. Canada sends about 75% of its exports to the United States. "Understandably, manufacturers grew increasingly downbeat about the future ... This meant firms also adopted an increasingly cautious approach to purchasing and employment," Smith said.

The measure of future output fell to 48.5 from 57.1 in January, marking the second-lowest level in survey data going back to July 2012. April 2020 was the only month when sentiment was weaker. A stronger U.S. dollar and suppliers adjusting prices in anticipation of tariffs contributed to increased input prices, S&P Global said. The input price index was at 58.9, its highest level since April 2023. The Bank of Canada has worried that tariffs could raise inflation even as they reduce prospects for economic growth.

US manufacturing stable in February, but storm brewing from tariffs

WASHINGTON, March 3 (Reuters) - U.S. manufacturing was steady in February, but a measure of prices at the factory gate jumped to near a three-year high and it was taking longer for materials to be delivered, suggesting that tariffs on imports could soon hamper production.

The Institute for Supply Management (ISM) said on Monday that its manufacturing PMI slipped to 50.3 last month from 50.9 in January, which marked the first expansion since October 2022. A PMI reading above 50 indicates growth in the manufacturing sector, which accounts for 10.3% of the economy. Economists polled by Reuters had forecast the PMI easing to 50.6. The dip in the PMI mirrored declines in other sentiment measures as President Donald Trump's administration ratchets up tariffs on imported goods.

Domestic manufacturers rely heavily on imported raw materials. Trump in his first month in office has issued a raft of tariff orders. A 25% tariff on Mexican and Canadian goods comes into effect on Tuesday after being delayed for a month, along with an extra 10% duty on Chinese imports, on top of 10% already imposed. Analysts have warned of a financial fallout for U.S. automakers and other companies manufacturing vehicles in Mexico and Canada to sell in the United States.

Other duties aimed at imported steel, aluminum and motor vehicles will either soon go into effect or are in fast-track development. Manufacturing only just started recovering after a prolonged downturn triggered by the Federal Reserve's aggressive monetary policy tightening in 2022 and 2023 to tame inflation. Concerns that tariffs will raise prices contributed to the U.S. central bank pausing interest rate cuts in January. The ISM survey's forward-looking new orders sub-index slumped to 48.6 last month from 55.1 in January. Production at factories nearly braked after rebounding in the prior month. Its measure of prices paid by manufacturers for inputs surged to 62.4, the highest reading since June 2022. It topped a forecast for 55.8 and was up from 54.9 in January. At face value this suggests goods prices could continue rising after increasing by the most in 11 months in January. Goods prices had largely been muted since last May.

Suppliers' delivery performance slowed considerably. The survey's supplier deliveries index increased to 54.5 from 50.9 in January. A reading above 50 indicates slower deliveries.

A lengthening in suppliers' delivery times is normally associated with a strong economy, which would be a positive contribution to the PMI. But in this case slower supplier deliveries could be indicating bottlenecks in supply chains. Imports grew further, implying that factories were front-loading materials ahead of tariffs. Factory employment contracted after expanding in January for the first time in eight months. The manufacturing jobs index dropped to 47.6 after rebounding to 50.3 in January.

China February manufacturing hits 3-month high, but US tariff war clouds outlook

BEIJING, March 1 (Reuters) - China's manufacturing activity expanded at the fastest pace in three months in February as new orders and higher purchase volumes led to a solid rise in production, an official factory survey showed on Saturday. The reading should reassure officials that fresh stimulus measures launched late last year are helping shore up a patchy recovery in the world's second-largest economy, ahead of China holding its annual parliamentary meeting starting on March 5. Whether the upturn can be sustained remains to be seen amid a trade war that was kicked off by U.S. President Donald Trump's first salvo of punitive tariffs.

The official purchasing managers' index (PMI) rose to 50.2 in February from 49.1 a month prior, the highest since November and beating analysts' forecasts in a Reuters poll of 49.9. The non-manufacturing PMI, which includes services and construction, rose to 50.4 from 50.2 in January.

Chinese policymakers are expected to announce economic targets and fresh policy support next week at the high-profile gathering in Beijing, which investors will also watch for signs of further support for the struggling property sector and indebted local developers.

China's $18 trillion economy hit the government's growth target of "around 5%" in 2024, though in an uneven manner, with exports and industrial output far outpacing retail sales while unemployment remained stubbornly high.

Beijing is expected to maintain the same growth target this year, but analysts are uncertain over how quickly policymakers can revive sluggish demand, especially given the intensifying trade tensions with the U.S. "Since the PMI data is measured on a month-on-month basis, it may be affected by seasonal factors related to the Spring Festival in January and February," said Zhang Zhiwei, chief economist at Pinpoint Asset Management.

"The manufacturing data is relatively stable," he added, with the caveat that a more accurate assessment would only be possible after the release of further data. China will release trade data for January-February on March 7. New export orders, factory gate prices, employment all remained in negative territory last month, the National Bureau of Statistics data showed, but contracted more slowly. Employment still hit a 22-month high.

TACKLING EXTERNAL SHOCKS

To sustain growth and counter rising external pressures, policymakers have pledged higher fiscal spending, increased debt issuance and further monetary easing.

Top Chinese Communist Party officials met on Friday and vowed to take steps to prevent and resolve any external shocks to China's economy, state media reported.

The Politburo meeting came a day after Trump said he would slap an extra 10% duty on Chinese goods on March 4, on top of the 10% tariff that he levied on February 4 over the fentanyl opioid crisis, to push Beijing to do more to stop the trafficking of the deadly drug.

That would result in a cumulative 20% tariff, which is still lower than the 60% he threatened on the campaign trail.

China's commerce ministry said on Friday it hoped to return to negotiations with the United States as soon as possible, warning that failure to do so could trigger retaliation.

Analysts polled by Reuters estimated the private sector Caixin PMI rose 50.3, from 50.1 in January. The data will be released on March 3.

China targets US agriculture over Trump tariff threat, Global Times says

BEIJING, March 3 (Reuters) - China has American agricultural exports in its cross hairs as it prepares countermeasures against fresh U.S. import tariffs, China's state-backed Global Times reported, raising the stakes in an escalating trade war between the world's top two economies.

U.S. President Donald Trump last week threatened China with the extra 10% duty set to take effect on Tuesday, resulting in a cumulative 20% tariff, and accused Beijing of not doing enough to halt the flow of fentanyl into America, which China said was tantamount to " blackmail ." "China is studying and formulating relevant countermeasures in response to the U.S. threat of imposing an additional 10% tariff on Chinese products under the pretext of fentanyl," Global Times reported on Monday, citing an anonymous source. "The countermeasures will likely include both tariffs and a series of non-tariff measures, and U.S. agricultural and food products will most likely be listed," the report added.

China's commerce ministry and the U.S. embassy in Beijing did not immediately respond to requests for comment. China is the biggest market for U.S. agricultural products, and the sector has long been vulnerable to being used as a punching bag in times of trade tensions. "Despite a decline in imports since 2018, any tariffs on key U.S. agricultural products like soybeans, meat and grains could have a significant impact on U.S.-China trade as well as U.S. exporters and farmers," said Genevieve Donnellon-May, a researcher at the Oxford Global Society. "The U.S. agricultural sector has had time to prepare for a second Trump administration and trade war 2.0, with lessons learned from the first Trump administration," she added. "So, in theory, it should be in a better place to find alternative markets. However, the reality may prove far more complex."

China's most active soymeal DSMcv1 and rapeseed meal CRSMcv1 futures, already underpinned by a supply shortage, each surged 2.5% after the Global Times report. The soymeal contract on the Dalian Commodities Exchange hit its highest since Sept 30, 2024.

The world's top agricultural importer and second-largest economy brought in $29.25 billion worth of U.S agriculture products in 2024, a 14% drop from a year earlier, extending a 20% decline seen in 2023.

Global Times, which is owned by the newspaper of the governing Communist Party, People's Daily, was first to report the steps China planned to take in response to the European Union slapping tariffs on Chinese electric vehicles last year.

Trump's announcement left Beijing with less than a week to come up with countermeasures or strike a deal. The proposed extra levies also coincide with the start to China's annual meeting of parliament, a political set piece event at which Beijing is expected to roll out its 2025 economic priorities.

TRUMP TARIFFS TO 'BACKFIRE'

Analysts say Beijing still hopes to negotiate a truce with the Trump administration, but with no signs of any trade talks yet the prospect of a rapprochement between the two economic giants is fading. "A China-U.S. trade war is not inevitable, but Trump's decision to impose tariffs now is a bad decision," said Wang Dong, executive director of the Institute for Global Cooperation and Understanding at Peking University. "Trump and his advisors may think that imposing tariffs at this time is to put pressure on China, sending a signal, but this will backfire and China will inevitably respond strongly." Tit-for-tat tariffs between the two countries during Trump's first term set off a full-blown trade war, upending financial markets and hurting global growth.

This time around, Trump's first salvo of fentanyl-related import duties on Feb. 4 was met by a quick retaliatory move by Beijing. China announced a series of wide ranging countermeasures targeting U.S. businesses including Google GOOGL.O and the owner of fashion brand Calvin Klein, and fresh import duties on U.S. coal, oil and some autos. China's commerce ministry said on Friday that it hoped to return to negotiations with the U.S. as soon as possible, warning that failure to do so could trigger retaliation.

State media said top Chinese Communist Party officials met the same day and vowed to take steps to prevent any external shocks to China's economy.

The Politburo meeting comes a week after the White House released an America First investment memorandum which placed China on a list of "foreign adversaries."

German chancellor-in-waiting promises swift moves on defence, investors sniff bonanza

BERLIN, March 3 (Reuters) - The prospect of a military spending boom by Germany unprecedented since the Cold War sent Europe's defence stocks soaring after Reuters reported the likely next government was mulling a fiscal sea change for Europe's biggest economy.

Germany's likely next chancellor, Friedrich Merz, did not confirm that his conservatives and the Social Democrats were mulling setting up special funds worth nearly a trillion euros to finance urgent defence and infrastructure spending. But he said spending decisions had to be taken "with great urgency" after U.S. President Donald Trump and his deputy harangued Ukraine's President Volodymyr Zelenskiy in the Oval Office on Friday, crystalising European fears that Washington had cooled on backstopping Europe's defence. "We must now show that we are in a position to act independently in Europe," he said. "The question of defence has priority."

News of the proposed funds sent shares in defence contractors including Thyssenkrupp TKAG.DE , Hensoldt HAGG.DE , Renk R3NK.DE , Rheinmetall RHMG.DE , BAE Systems BAES.L and Leonardo LDOF.MI jump by double-digit percentages on Monday morning. Neither party has confirmed that a special fund for defence worth 400 billion euros ($417 billion) and for infrastructure worth as much as 500 billion euros were under discussion, a sum which combined would amount to 20% of German GDP.

"There is an enormous need for investment and we won't create consent for it if we just invest in defence," said SPD General Secretary Matthias Miersch on Monday. "The two need to be considered together." Merz made no comment on the numbers which, if confirmed, would amount to an extra 2% of economic output in spending over the next 10 years, kicking in from next year. "This would be about as much as the country has invested in East Germany since reunification," Deutsche Bank wrote in a note. "It would be a fiscal regime shift of historic proportions."

Bild newspaper reported that an extraordinary session of parliament might be called for next Monday, which would allow the measure to be passed with the backing of the Greens - who on Monday urged Chancellor Olaf Scholz's outgoing government to approve a further 3 billion euros' funding for Ukraine.

After the new parliament is seated this month, the defence-sceptical Left party's support will be needed to reach the necessary two-thirds majority.

For decades, Germany has been a defence laggard, until 2023 spending less than NATO's target of 2% of economic output on defence, with Russia's invasion of Ukraine and Scholz's defence "Zeitenwende" or sea change only bringing modest changes.

The use of a special fund - effectively a credit line - reflects the difficulties in circumventing a constitutional spending cap that limits the amount of new debt German governments can take on each year. The soaring shares reflect investor confidence that the makers of military vehicles, ammunition and other battlefield kit will be big winners from the bonanza.

Scholz's previous attempts to boost military spending also relied on a special fund, formally separate from Germany's 2 trillion euros in public spending.

They are legally tricky: a court ruling against his use of another fund paved the way for the collapse of his government and the election he lost last month, while the state auditor has called for their use to be reined in.

The economic impact of the defence fund would be modest in the short term, Deutsche Bank wrote, since much of it would be spent on imports.

The infrastructure fund, badly needed after years of frugality have left much of Germany's public realm, from bridges to railways, in a ragged state, would have a bigger impact.

Source: tradingeconomics.com , LSEG Workspace, Ventum Financial

Weekly Economics Report - Feb. 28, 2025

Sun, 02 Mar 2025 15:00:45 GMT

Chicago Fed National Activity Index Edges Down

The Chicago Fed National Activity Index for the US fell to -0.03 in January 2025 from an upwardly revised 0.18 in December 2024, suggesting economic growth decreased. The personal consumption and housing category's contribution was -0.14 in January, down from +0.02 in December. Also, production-related indicators contributed +0.03, down from +0.19. The sales, orders, and inventories category made a neutral contribution, up from -0.04; and employment-related indicators contributed +0.07, up from +0.01. Meanwhile, the index's three-month moving average, CFNAI-MA3, increased to +0.03 in January from -0.13 in December 2024.

Eurozone Inflation Rate Confirmed at 6-Month High

The consumer price inflation rate in the Euro Area was confirmed at 2.5% in January 2025, the highest rate since July 2024, driven primarily by a sharp acceleration in energy costs (1.9% vs. 0.1% in December). Meanwhile, inflation for non-energy industrial goods remained steady at 0.5%, while price increases slowed for both services (3.9% vs. 4.0%) and food, alcohol, and tobacco (2.3% vs. 2.6%). The core inflation rate, which excludes volatile food and energy prices, remained unchanged at 2.7% for the fifth consecutive month, marking its lowest level since early 2022. On a monthly basis, consumer prices fell by 0.3% in January, following a 0.4% increase in December.

Source: tradingeconomics.com , LSEG Workspace, Ventum Financial

Weekly Economics Report - Feb. 21, 2025

Sat, 22 Feb 2025 19:36:00 GMT

Canada's annual inflation in January edges up to 1.9%, core measures also up

OTTAWA, Feb 18 (Reuters) - Canada's annual inflation rate inched up to 1.9% in January from the previous month as higher gasoline and natural gas costs reduced the impact of a sales tax reprieve on broader consumer prices, official data showed on Tuesday.

The core measures of the consumer price index, which have not declined as fast as the inflation rate in the past few months, edged up too. January's CPI reading racked up a six-month record of inflation coming in at or below the 2% mark - the mid-point of the Bank of Canada's 1%-3% target range, but underlying price pressures reduced currency swap market bets for an interest rate cut next month.

They now see an almost 63% chance of no rate cut in March, compared with 56% before January's inflation data was released. 0#CADIRPR. If U.S. President Donald Trump decides to impose tariffs on Canadian imports from March, market expectations for a rate cut could change considerably.

Tuesday's annual inflation reading matched the forecast of analysts polled by Reuters. In December, inflation stood at 1.8%. On a monthly basis, prices were up 0.1% in January, Statistics Canada said. The government announced a sales tax holiday on a range of products such as food, beverages, restaurant meals and children's clothing from mid-December to mid-February, helping to ease inflationary pressures, it said.

Prices for the food component of the CPI basket fell 0.6% on a year-over-year basis in January, the first yearly decrease since May 2017, driven by a record 5.1% decline in prices for food purchased from restaurants, the data showed.

Without the tax relief, consumer prices would have risen at a rate of 2.7%, Statscan said. In December, excluding the tax break, prices were up 2.3%.

The Canadian dollar CAD= weakened on Tuesday and was trading down 0.13% at 1.4199 to the U.S. dollar, or 70.43 U.S. cents.

Yields on the two-year government bond CA2YT=RR were up 6.8 basis points to 2.797%. Economists have said the sales tax break had distorted overall inflation numbers, and that core inflation was a more accurate gauge of consumer price trends.

The BoC has two preferred measures of core inflation - CPI-median and CPI-trim. CPI-median - or the centermost component of the CPI basket when arranged in an order of increasing prices - rose to 2.7% from an upwardly revised 2.6% in December. CPI-trim - which excludes the most extreme price changes - was up to 2.7% from 2.5% in the prior month.

The upward pressure on inflation in December was led by an 8.6% jump in prices paid by Canadians at fuel pumps, Statscan said. That was further boosted by a 4.8% rise in natural gas prices and the first year-over-year rise in eight months in passenger vehicle costs. With prices staying at or below the BoC's 2% target, the central bank has been able to implement the most aggressive rate easing among the G7 nations. Last month, it reduced the key policy rate to 3%.

Canadian housing starts rise 3% in January, CMHC says

OTTAWA, Feb 17 - Canadian housing starts rose 3% in January compared with the previous month as groundbreaking increased on multiple unit urban homes, data from the national housing agency showed on Monday. The seasonally adjusted annualized rate of housing starts rose to 239,739 units in January from revised 232,492 units in December, the Canadian Mortgage and Housing Corporation (CMHC) said. Economists had expected starts to rise to 252,500 units.

Foreigners buy C$14.37 bln in Canadian securities in December

Feb 17 (Reuters) - Foreign investors bought a net C$14.37 billion ($10.13 billion) in Canadian securities in December, led by federal government bonds, following a downwardly revised C$13.84 billion total purchase in November, Statistics Canada said on Monday. Canadian investors bought a net C$3.77 billion worth of foreign securities, led by purchases of U.S. shares.

US homebuilder sentiment drops to five-month low in February

WASHINGTON, Feb 18 (Reuters) - U.S. homebuilder sentiment tumbled to a five-month low in February amid worries that tariffs on imports would combine with higher mortgage rates to further drive up housing costs.

The National Association of Home Builders/Wells Fargo Housing Market Index plunged five points to 42 this month, the lowest reading since September. That erased all the gains that were notched in the aftermath of President Donald Trump's election victory in November, when sentiment had risen in anticipation of a less-stringent regulatory environment

Trump in his first weeks in office slapped an additional 10% tariff on imported goods from China. A 25% levy on imports from Mexico and Canada was suspended until March. Trump this month raised tariffs on steel and aluminum imports to 25%.

New home construction is heavily reliant on imported materials, including lumber, as well as other goods like household appliances. The decline in homebuilder sentiment mirrored a decrease in consumer sentiment. Tariffs have also rattled consumers. "While builders hold out hope for pro-development policies, particularly for regulatory reform, policy uncertainty and cost factors created a reset for 2025 expectations in the most recent HMI," said NAHB Chairman Carl Harris.

The survey's measure of current sales conditions fell four points to a five-month low of 46. A gauge of sales expectations in the next six months plunged 13 points to 46, the lowest level since December 2023. Its measure of prospective buyers traffic slipped three points to 29. "With 32% of appliances and 30% of softwood lumber coming from international trade, uncertainty over the scale and scope of tariffs has builders further concerned about costs," said NAHB Chief Economist Robert Dietz. "Addressing the elevated pace of shelter inflation requires bending the housing cost curve to enable adding more attainable housing."

The nation is facing a housing shortage, which has boosted rents and contributed to elevated inflation. The average rate on the popular 30-year fixed-rate mortgage is hovering just under 7%. Residential spending rebounded in 2024, lifted by single-family home construction as builders took advantage of a shortage of previously owned homes for sale.

Source: tradingeconomics.com , LSEG Workspace, Ventum Financial

Weekly Economics Report - Feb. 10, 2025

Mon, 17 Feb 2025 19:50:53 GMT

China's consumer inflation at 5-month high, producer deflation persists

BEIJING, Feb 9 (Reuters) - China's consumer inflation accelerated to its fastest in five months in January while producer price deflation persisted, reflecting mixed consumer spending and weak factory activity.

Deflationary pressures are likely to persist in China this year, analysts say, unless policymakers can rekindle sluggish domestic demand, with tariffs by U.S. President Donald Trump on Chinese goods adding pressure on Beijing to spur growth in the world's second-largest economy.

The consumer price index rose 0.5% last month from a year earlier, quickening from December's 0.1% gain, data from the National Bureau of Statistics showed on Sunday, above the 0.4% rise estimate in a Reuters poll of economists.

Core inflation, excluding volatile prices for food and fuel, sped up to 0.6% in January from 0.4% the previous month. Although consumer prices are expected to rise gradually, producer prices are unlikely to return to positive territory in the short term as overcapacity in industrial goods persists, said Xu Tianchen, senior economist at the Economist Intelligence Unit. "If measured by the GDP deflator, it will still take a few quarters to get out of deflation, " Xu said.

The numbers were skewed by seasonal factors, as the Lunar New Year, China's biggest annual holiday, began in January this year versus February last year. Typically, prices rise as consumers stockpile goods, particularly food for big family gatherings. Prices of airplane tickets rose 8.9% from a year earlier, tourism inflation was 7.0% and movie and performance ticket prices rose 11.0%. Consumer spending reports over the holidays were mixed, reflecting worries over wage and job security.

While Chinese flocked to movie theatres and spent more on shopping, catering and domestic travel, per capita spending during the holidays grew by only 1.2% from a year earlier, versus a 9.4% rise in 2024, analysts at ANZ estimated.

CPI edged up 0.7% in January from the previous month, below the forecast 0.8% rise and compared with an unchanged outcome in December. For 2024, CPI rose 0.2%, in line with the previous year's pace and well below the official target of around 3% for last year, suggesting inflation missed annual targets for the 13th straight year.

China's provinces have announced 2025 economic growth targets with the average of target prices below 3%, showing that policymakers are anticipating changes and pressures on the price level, said Bruce Pang, adjunct associate professor at CUHK Business School. China's manufacturing unexpectedly contracted in January, while services activity weakened, keeping alive calls for more stimulus. Beijing is widely expected to retain its economic growth forecast of around 5% this year, but fresh U.S. tariffs will put stress on exports, one of the few bright spots in the economy last year.

The producer price index declined 2.3% on year in January, matching December's drop and deeper than the forecast 2.1% fall. Factory-gate prices have remained deflationary for 28 straight months. The government is not expected to change monetary or fiscal policy before the annual parliament session in March, said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management. "For policymakers, external uncertainty seems to rank higher than domestic economic challenges at this stage," Zhang added.

Euro zone investor morale improves in February

BERLIN, Feb 10 (Reuters) - Investor morale in the euro zone brightened in February to its highest since July, a survey showed on Monday, with Germany also benefiting from the rise in confidence.

The Sentix index for the euro zone rose to -12.7 in February from -17.7 in January, above the -16.3 forecast by analysts polled by Reuters. The survey of 1,111 investors from February 6-8 showed the assessment of the current situation also improved to -25.5 in February from -29.5 in January.

Economic expectations for the next six months rose more dynamically, to 1.0 in February from -5.0 in January, exceeding the magic zero line for the first time since July.

"Germany's recessionary economy is hanging like a lead weight on the euro zone," the survey said. "It is precisely from here that there is now hope for improvement." The survey found that in Germany - Europe's largest economy and one facing federal elections this month - expectations improved, reflecting hope that a newly elected government could change the economic course.

Source: tradingeconomics.com , LSEG Workspace, Ventum Financial

Weekly Economics Report - Feb. 3, 2025

Wed, 05 Feb 2025 16:02:10 GMT

Canadian factory PMI dips in January as trade war risk dents confidence

TORONTO, Feb 3 (Reuters) - Canadian manufacturing activity increased at a slower pace in January as looming U.S. trade tariffs reduced confidence in the outlook, even as moves by clients to get ahead of the taxes led to the first increase in export orders in 17 months.

The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) fell to 51.6 in January from 52.2 in December. Still, it was the fifth straight month above the 50.0 no-change mark. A reading above 50 indicates expansion in the sector.

U.S. President Donald Trump on Saturday ordered sweeping tariffs of 25% on goods from Mexico and Canada, demanding they stanch the flow of fentanyl and illegal immigrants. Canadian Prime Minister Justin Trudeau said Canada would respond with 25% tariffs against $155 billion of U.S. goods, including beer, wine, lumber and appliances.

“January’s survey highlighted the complex impact that possible U.S. tariffs are presently having on the Canadian manufacturing economy," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.

Canada sends about 75% of its exports to the United States. The new export orders index rose to 50.3, its first move above the 50 threshold since August 2023.

"Firms noted that clients in some instances were bringing forward their orders to get ahead of these potential tariffs, and output amongst manufacturers was being raised in response," Smith said. “However, the threat of tariffs from the U.S. is leading to a huge amount of uncertainty in product markets, and firms are growing increasingly concerned about a potential trade war with a key trading partner."

The output index fell to 52.3 from 53.0 in December and the measure of future output was at 57.1, its lowest level since July.

A stronger U.S. dollar, which jumped on Monday to a 22-year high against its Canadian counterpart, contributed to increased material costs, S&P Global said.

The input price index rose to 58.3, its highest level since April 2023, while the output price index was at 53.5, up from 52.3 in December. Last week, the Bank of Canada said it was concerned that U.S. tariffs could stoke persistently high inflation as it cut interest rates by 25 basis points to 3%.

US manufacturing rebounds in January; inputs prices paid measure surges

WASHINGTON, Feb 3 (Reuters) - U.S. manufacturing grew for the first time in more than two years in January amid strong orders, but a measure of prices paid by factories for raw materials rose solidly, and more increases are likely after President Donald Trump imposed tariffs on goods from Canada and Mexico at the weekend.

The Institute for Supply Management (ISM) said on Monday that its manufacturing PMI increased to 50.9 last month, the highest reading since September 2022, from 49.2 in December. It was the first time since October 2022 that the PMI rose above the 50 mark, indicating growth in the manufacturing sector, which accounts for 10.3% of the economy. Economists polled by Reuters had forecast the PMI rising to 49.8.

The tentative recovery, likely partly driven by hopes of tax cuts, could be short-lived as tariffs are expected to raise the costs of raw materials and snarl supply chains. Trump on Saturday slapped 25% tariffs on Canadian and Mexican goods that are due to take effect on Tuesday.

Manufacturing has been undercut by the Federal Reserve hiking interest rates by 5.25 percentage points in 2022 and 2023 to tame inflation. The U.S. central bank started its policy easing cycle in September. It lowered rates by 100 basis points before pausing in January amid uncertainty about the economic impact of the administration's policies, including deportations.

Manufacturing contracted 0.4% from the fourth quarter of 2023 through the fourth quarter of 2024, Fed data showed.

The ISM survey's forward-looking new orders sub-index jumped to 55.1 last month from 52.1 in December. Production at factories also picked up.

Its measure of prices paid by manufacturers raced to an eight-month high of 54.9 from 52.5 in December, where economists had forecast a rise to 53.5.

Imports grew, suggesting manufacturers were front-loading materials ahead of tariffs. Factory employment expanded for the first time since May, with the manufacturing jobs index rebounding to 50.3 from 45.4 in December.

MONTHLY CONSTRUCTION SPENDING, DECEMBER 2024

February 3, 2025 — The U.S. Census Bureau announced the following value put in place construction statistics for December 2024:

Total Construction spending during December 2024 was estimated at a seasonally adjusted annual rate of $2,192.2 billion, 0.5 percent (± 0.8 percent)* above the revised November estimate of $2,180.3 billion. The December figure is 4.3 percent (±1.3 percent) above the December 2023 estimate of $2,101.3 billion. The value of construction in 2024 was $2,154.4 billion, 6.5 percent (±1.0 percent) above the $2,023.7 billion spent in 2023.

Source: US Census Bureau

China factory activity growth slows in January, Caixin PMI shows

BEIJING, Feb 3 (Reuters) - China's factory activity grew at a slower pace in January, while staffing levels fell at the quickest pace in nearly five years as trade uncertainties increased, a private-sector business survey showed on Monday.

The Caixin/S&P Global manufacturing PMI slipped to 50.1 in January from 50.5 the previous month, missing analysts' forecasts in a Reuters poll of 50.5 and easing to a four-month low. But it just exceeded the 50-mark that separates growth from contraction.

Still, the reading was better than an official survey last week, which showed manufacturing activity unexpectedly contracted at the start of 2025, keeping alive calls for more stimulus in the world's second-largest economy. The smaller Caixin survey is believed to focus more on export-oriented companies.

According to the Caixin survey, manufacturing production accelerated in January from December, while total new orders increased at the quickest pace since November. Factory owners reported improved demand and anecdotal evidence suggested that some clients had ramped up orders for stockpiling purposes.

In the face of U.S. President Donald Trump's tariff threats, anecdotal evidence suggested exporters rushed to load cargoes at a major Chinese port before the eight-day Lunar New Year holiday and ahead of any new tariffs. Trump on Saturday ordered 10% tariffs on goods from China and larger levies on Canadian and Mexican imports, risking a new trade war that economists say could slow global growth and reignite inflation.

The Caixin survey showed January new orders from abroad declined for a second straight month. And factories' average selling prices declined at fastest pace since July 2023, reflecting pressure to support sales and market share amid rising competition and global uncertainties.

Still manufacturers' sentiment improved on signs of improving domestic demand and expectations of more government support measures for the economy. Employment usually eases as factories tend to shut temporarily over the long Lunar New Year holiday. But January's job shedding rate speeded up to the fastest since February 2020.

According to manufacturers, the fall in employment levels reflected the non-replacement of job leavers and redundancies due to cost concerns.

Nonethless, the reduction in staffing levels and rising new orders led to a fourth monthly accumulation of backlogged work in the manufacturing sector.

“Rising uncertainty in international policies could worsen China’s export environment, posing significant challenges for the economy,” said Wang Zhe, economist at Caixin Insight Group. Economic policies hence ”must be well-prepared and adjusted promptly” to adapt to evolving circumstances, he added.

Source: tradingeconomics.com , LSEG Workspace, Ventum Financial

Weekly Commodities Report - Jan. 31, 2025

Fri, 31 Jan 2025 23:09:24 GMT

CRB Commodity Index increased 12.93 points or 3.62% since the beginning of 2025, according to trading on a contract for difference (CFD) that tracks the benchmark market for this commodity. Historically, CRB Commodity Index reached an all time high of 470.17 in July of 2008.

WTI crude oil futures rose toward $73 per barrel on Friday, extending gains from the previous session, as traders awaited further clarity on President Trump's looming tariff deadline. Trump reaffirmed plans to impose 25% tariffs on Canada and Mexico starting Saturday but indicated he was still considering whether to exempt oil from the levies. Canada and Mexico are the two largest crude exporters to the US. Meanwhile, investors are also looking ahead to the OPEC+ meeting scheduled for February 3, as Trump pressures the group, particularly Saudi Arabia, to lower oil prices. Traders expect OPEC+ to maintain its current supply policy, with additional supply increases only starting in April. For the month, oil is on track for a second consecutive monthly gain, driven by early reports of US sanctions on Russia and cold weather in the US.

European natural gas futures climbed toward €52 per megawatt-hour, closing in on the highest level since October 2023, as colder weather boosted demand and Norwegian gas outages limited the supply. Outages at Norway’s Gullfaks, Troll, and Aasgard fields are restricting supply to Europe, with Norwegian gas nominations dropping to 313 million cubic meters on Wednesday, a 5 mcm decrease from the previous day. Adding to woes, gas storage in Europe stands at 55.46% full, down from 71.79% at the same time last year, and depletion is expected to accelerate in the coming days. Still, while forecasts predict lower wind speeds, the temperatures is set to return to normal, with light to moderate frost at night.

Gold rose past $2,805 per ounce, a new record high, supported by a wave of looser monetary policy from major central banks. The Federal Reserve held its rates unchanged and refrained from hinting at future moves, sustaining market expectations of two rate cuts this year. In turn, the Bank of Canada cut its main interest rate and announced the end of quantitative tightening, in addition to a base scenario for the purchase of government debt in the near future. Also on the policy front, both the ECB and Swedish Riksbank delivered rate cuts, while central banks from major gold consumers in the PBoC and RBI also signaled looser monetary policy and higher liquidity in the near future. Meanwhile, investors awaited clarity on tariff exchanges between North American nations after reports suggested that US tariffs on Canada and Mexico will be delayed to March instead of this weekend, limiting concerns of trade barriers as Washington DC displays more indecision on the matter.

Steel rebar futures were over CNY 3,300 per tonne before Chinese commodity markets closed for the Lunar New Year, as the impact of poor economic data on the demand outlook was offset by optimism of open trade. The latest official PMI data pointed to a sharp contraction in construction activity in the first month of the year, with the official construction PMI slumping to a record low of 49.3 from 53.2 in the previous month, especially impacting the outlook for rebar. Besides its major use in construction, demand for ferrous metals was also supported by the unexpected deterioration in manufacturing activity. Still, the new US Presidential Administration relaxed its rhetoric of tariffs on China, limiting concerns of global protectionist policies. Such developments lift global demand for Chinese steel, among the main clients for mills as China exported 9.7 million tons of steel in December, a 26% surge from the previous year to cap off a record-setting year for steel exports.

Iron ore prices for cargoes with 62% iron content held steady above $101 per ton in late January, maintaining a sideways trend for about two weeks as investors continued to assess the potential impact of upcoming tariffs. US President Donald Trump reiterated his threat to impose a 25% tariff on Mexico and Canada starting on Saturday, while a 10% tariff on China remains under consideration. The President also recently announced plans to impose tariffs on imported chips, pharmaceuticals, steel, aluminum, and copper in an effort to boost domestic production. In top consumer China, recent data showed that manufacturing activity unexpectedly contracted in January. Meanwhile, trading volumes are expected to remain lighter as Chinese markets are closed for the week-long Lunar New Year holiday.

Lithium carbonate prices were at near the CNY 78,000 per tonne, holding the rebound from the two-month low of CNY 75,000 from the start of the year, amid hints that the ongoing supply glut may ease in 2025. Fiscal benefits tied to EV purchases by Chinese households aligned with data that pointed to a 30.5% surge in output of new energy vehicles in December. The results aided hopes that battery prices will rise in the near future as manufacturers stabilize their inventory levels. In the meantime, the closure of selected mines due to the slump in lithium prices has not offset increased production for other major producers. Still, other key Chinese miners refrain from closing operations to retain market share and business relationships with governments and battery producers. In turn, US President Trump revoked the previous administrations order that ensured half of all new vehicles sold in 2030 were fully electric, driving major EV producers with exposure to US market to drop.

Soybean futures traded around $10.40 per bushel, its lowest in over a week, as anticipated favorable weather conditions in top producer Brazil tempered concerns about supplies. Despite a slow harvest, analysts remain optimistic about a bumper crop in Brazil, with any crop loss due to Argentina’s hot, dry weather expected to be offset by Brazil's production. According to Commodity Weather Group, southern Brazil and Paraguay could see relief next week, with dry conditions in northern Brazil aiding the early harvest, though wet weather is set to return briefly. In Argentina, rain in key regions like Cordoba, Santa Fe, and Entre Rios should improve moisture levels in the north, but dry conditions are set to persist in the south and central areas. At the same time, concerns over demand grew after news on Wednesday that China had halted soybean shipments from five Brazilian firms due to cargoes failing to meet plant health requirements.

Corn futures increased 26.67 USd/BU or 5.82% since the beginning of 2025, according to trading on a contract for difference (CFD) that tracks the benchmark market for this commodity. Historically, Corn reached an all time high of 843.75 in August of 2012.

US natural gas futures dropped below $3.6/MMBtu, near a three-week low, due to warmer-than-expected weather forecasts for early February. Weekend updates predicted milder conditions across much of the US from February 1-5, reducing anticipated heating demand. While colder weather in the Midwest and Northeast will bring moderate demand this week, most regions are expected to stay warmer than usual over the next two weeks. Analysts still expect a 317 bcf gas withdrawal for the week ending January 24, which could eliminate the gas inventory surplus for the first time since early 2022. Meanwhile, LNG exports are increasing, helped by the restart of Freeport LNG’s Texas facility.

US gasoline futures rose to $2.05 per gallon after hitting a three-week low, as traders awaited clarity on President Trump's upcoming tariff deadline. Trump reaffirmed his plan to impose 25% tariffs on Canada and Mexico starting Saturday but suggested he might exempt oil from the levies. Meanwhile, investors are watching the OPEC+ meeting on February 3, as Trump continues to pressure the group, particularly Saudi Arabia, to lower oil prices. Traders expect OPEC+ to maintain its current supply policy, with any additional increases likely beginning in April.

Silver prices remained above $31.40 per ounce on Friday, hovering near seven-week highs as US President Donald Trump reiterated his threat to impose a 25% tariff on Mexico and Canada starting Saturday, boosting safe-haven demand for precious metals. The Silver Institute also projected a fifth consecutive year of significant market deficit for the metal in 2025. This outlook is largely driven by strong industrial demand and retail investment, which are expected to outweigh weaker consumption in jewelry and silverware. Key industrial uses include solar panels, electric vehicles, and consumer electronics. While global silver supply is expected to rise this year, with increased output from China, Canada, and Chile, the ongoing deficit is anticipated to continue.

Copper futures hovered around $4.28 per pound on Friday, on track to finish the week little changed after experiencing significant volatility throughout the period, driven by concerns over US President Donald Trump’s tariff threats. In recent developments, Trump reaffirmed plans to impose 25% tariffs on Mexico and Canada on Saturday, while a 10% tariff on China is still under consideration. The President also recently unveiled plans to impose tariffs on imported chips, pharmaceuticals, steel, aluminum, and copper to support domestic production. Meanwhile, in China, the world’s top copper consumer, recent data revealed an unexpected contraction in manufacturing activity for January. With Chinese markets closed for the week-long Lunar New Year holiday, trading volumes are expected to remain lighter than usual.

Aluminum futures held below the $2,600 per tonne threshold, tacking the pullback in base metals as pessimistic demand expectations outweighed risks of lower global supply. The official manufacturing PMI in China pointed to a sharp contraction in activity during January, erasing the earlier hope that stronger credit aggregates would translate to traction in economic activity and industrial metal demand. Additionally, US President Trump threatened to put tariffs on aluminum and other key base and ferrous metals, easing the outlook on US demand. On the supply front, China produced a record high 44 million tons of aluminum in 2024, meaning that output will be forced to slow as Beijing capped output at the 45 million tons in 2017 to prevent excess supply and aid carbon emission targets. In turn, the EU was set to sanction the import of primary aluminum from Russia in its upcoming package, consolidating the phase out of metal from the country.

Nickel futures were below $15,400, the lowest since touching to the four-year low of $15,000 touched on January 2nd as threats of output curbs were not enough to impact bets of an oversupplied market in upcoming years. Reports indicated that top producer Indonesia is considering policy to reduce nickel mining quotas to 150 million tons this year from 270 million tons in 2024, enough to reduce global supply by 35%. Still, the muted magnitude of the rebound indicate that markets expect the nickel market to remain in oversupply. This is due the surge of Chinese smelting projects in Indonesia after the latter prohibited the export of nickel ores in 2020. Indonesia was the host of 44 nickel smelting operations as of September, compared with four 10 years prior. Adding to the bearish pressure, new technology used by Chinese battery producers started to use technologies that refrain from using nickel, further denting the outlook for the metal.

Wheat futures have fluctuated between $5.30 and $5.50 per bushel in January, as traders closely observed demand and supply trends. Despite relatively weak demand, concerns over supply remained, including the risk of severe cold damaging some U.S. winter wheat and ongoing challenges in Russia. However, Australia's wheat production for the 2024-25 marketing year is estimated at 32 million tonnes, 21% above the 10-year average, despite insufficient rainfall in the southern regions, according to a report from the Foreign Agricultural Service (FAS) of the U.S. Department of Agriculture. Meanwhile, the International Grains Council recently projected global wheat production to reach a record 805 million tonnes in 2025/26, a 1% increase from the previous year, with 2024/25 production estimated at 796 million tonnes and consumption forecast to match production at 805 million tonnes.

Lumber prices climbed toward $580 per thousand board feet, approaching eight-week highs of $600 on January 16th, driven primarily by the impending 25% US tariff on Canadian exports, set to take effect on February 1st. Canada, the largest supplier of U.S. lumber, accounts for about a quarter of the nation's needs, and this tariff will significantly impact U.S. housing construction, where lumber is a key input. The ongoing trade dispute has already reduced Canada's share of the U.S. market from 33% in 2016 to 24% in 2024, further tightening supply. Meanwhile, U.S. mills are operating at near full capacity, and efforts to ramp up domestic production are constrained by environmental restrictions on public forests and opposition to expanded logging. Compounding these issues, severe weather has disrupted Southern Pine production, exacerbating the supply strain. In anticipation of price increases, U.S. buyers are maintaining lean inventories, adding to market volatility.

Uranium futures fell below $69 per pound for the first time in 16 months in January as markets recalibrated demand expectations against a backdrop of ample supply. Restrictions on imports of enriched nuclear fuel from Russia, which is responsible for around half of global enrichment capacity according to some estimates, shrunk the pool of yellowcake consumers in the market for mined uranium. The relatively ample availability of yellowcake is expected to remain as import wavers for nuclear fuel in the US are due to expire by 2027. In the meantime, markets reconsidered their speculative positions on nuclear power demand for US datacenters following the emergence of more efficient large language models. China’s open-source DeepSeek AI claimed to consume 95% less power than established US counterparts, erasing the race to develop alternative power sources. Such deals included nuclear power plants coming online to service data centers for Microsoft, Alphabet, and Amazon Web Services.

Source: tradingeconomics.com , LSEG Workspace, Ventum Financial

Weekly Commodities Report - December 6, 2024

Tue, 10 Dec 2024 16:55:53 GMT

CRB Commodity Index increased 41.96 points or 13.92% since the beginning of 2024, according to trading on a contract for difference (CFD) that tracks the benchmark market for this commodity. Historically, CRB Commodity Index reached an all time high of 470.17 in July of 2008.

WTI crude oil futures extended its recent decline to below $68 per barrel on Friday, as OPEC+'s decision to delay restoring halted production failed to lift market sentiment amid expectations of oversupply next year. On Thursday, the producer group postponed the supply hike by another three months, opting to begin with a gradual increase in April and phase out production cuts over 18 months, at a slower pace than originally planned. This decision aligns with market expectations, as the group aims to balance declining global demand with rising output from non-OPEC+ countries. Meanwhile, the UAE also announced it would delay the planned 300,000 bpd increase in its crude production target from January to April. Over the week, oil is on track for modest gains following a sharp decline the previous week.

European natural gas futures dropped to €46.3 per megawatt-hour, their lowest in over two weeks, after Russia eased payment rules for gas purchases, reducing fears of supply disruptions. President Vladimir Putin’s decision allows foreign buyers to use third-party banks to convert payments into rubles and transfer them to Gazprombank, avoiding complications from US sanctions. Although Europe has diversified its gas sources, faster-than-normal storage withdrawals this winter have heightened vulnerability to potential disruptions. Current inventories are about 84% full, below last year’s levels. Increased liquefied natural gas imports and mild, windy weather forecasts are helping ease supply concerns. Prices are on track for their first weekly decline since November, down over 3%.

Gold retraced earlier gains to trade near $2,625 on Friday, as investors monitored recent data. Although the US economy added 237,000 jobs in November, surpassing the upwardly revised 236,000 in October and market expectations of 200,000, the jobless rate inched higher to 4.2%. Consequently, traders believe that this might not be sufficient to deter the Fed from cutting interest rates this month. Currently, markets are pricing in an 87% chance of a 25 basis point rate reduction this month, up from 71% yesterday and 66.5% a week ago. On the other hand, the World Gold Council reported a decline in physical demand from China, a leading gold consumer. Additionally, global physically backed gold exchange-traded funds (ETFs) experienced outflows in November following six consecutive months of inflows.

Steel futures rose to CNY 3,350 per tonne, the highest in one-and-a-half months, and tracking the sharp gains for equities of major property developers amid expectations of more economic support for house buyers ahead of China’s Central Economic Work Conference. Markets expect key Chinese policymakers to expand their arsenal of economic support measures in response to tariff threats from US President-elect Trump. Among the support measures are reports that policymakers will set the 2025 fiscal deficit at higher-than-expected levels, increasing liquidity for debt-ridden property developers, among the main consumers of steel rebar in the world. Tariffs and the momentum of protectionist policies would hamper foreign demand for Chinese steel as mills have increasingly depended on foreign consumers to meet sales targets. Chinese steel production rose to 81.9 million tons in October, driving exports in the period to surge to 11.2 million tons, the second-highest on record.

Iron ore prices for cargoes with 62% iron content climbed above $106 per ton in early December, supported by hopes that Beijing will introduce more stimulus measures during key political meetings this month. The Politburo’s decision to skip a readout of its regular November meeting has fueled speculation that stimulus support could be on its way as the world’s second-largest economy braces for the return of Donald Trump. The US president-elect has made two tariff threats in the past week, including a warning to impose a 100% tariff on the BRICS nation if they create a currency to rival the US dollar. Strong steel exports and destocking in China have also boosted steel margins, supporting higher production. Additionally, the latest data revealed that Chinese manufacturing activity expanded for the second consecutive month in November, further strengthening the demand outlook for iron ore.

Lithium decreased 19,600 CNY/T or 20.31% since the beginning of 2024, according to trading on a contract for difference (CFD) that tracks the benchmark market for this commodity. Historically, Lithium reached an all time high of 5750000.00 in December of 2022.

Soybean prices stabilized just below $10 per bushel, underpinned by strong production outlooks in Brazil and improved weather in Argentina. Brazilian soybean output for the 2024/25 season is forecast to hit record levels, with Celeres estimating 170.8 million metric tons, nearly 1 million tons higher than previous projections, and StoneX forecasting 166.2 million tons. Meanwhile, much-needed rainfall in Argentina’s key farming regions has boosted soil conditions as planting progresses. Despite increased U.S. export sales, soybeans remain locked in a narrow range due to ample global supplies and lingering concerns over potential trade tensions with China, the world's top soybean importer, under the incoming Trump administration.

Corn futures dipped toward $4.20 per bushel in late November amid ample supplies and demand concerns.

US natural gas futures dipped toward $3/MMBtu after a smaller-than-expected storage drawdown reported by the EIA. Utilities withdrew 30 billion cubic feet of natural gas in the week ending November 29, below market expectations of a 43 billion cubic feet draw, leaving inventories at 3,937 billion cubic feet. Natural gas prices are down over 8% this week, as forecasts suggest a shift from colder-than-normal weather through December 7 to warmer-than-normal conditions afterward, likely reducing heating demand. On the supply side, December production in the Lower 48 states rose to 102.3 bcfd from 101.5 bcfd in November but remained below the record 105.3 bcfd from last December. Analysts anticipate production increases in 2025, driven by stronger LNG export demand and recovering prices. Supporting this, feedgas volumes to major LNG export plants averaged 14.2 bcfd in early December, up from November’s 13.6 bcfd, approaching record levels.

US gasoline futures edged closer to $1.90 per gallon, nearing a two-and-a-half-month low, as oil markets remained under pressure despite OPEC+’s decision to delay production increases. OPEC+ announced it would keep current output levels through Q1 2025 and gradually lift production starting in April, extending cuts over 18 months at a slower pace than planned, reflecting concerns about a potential supply glut next year. Traders are also monitoring China's upcoming economic plans for potential stimulus measures. In the US, crude stockpiles posted their largest decline in five months, but gasoline and distillate inventories rose more than expected, adding to bearish market sentiment.

Silver prices prices held steady above $31 per ounce on Friday, nearing one-month highs as traders piled on bets that the US Federal Reserve will cut interest rates again this month. The probability of a 25 basis point rate cut in December surged to around 72%, up from 66% last week. These expectations grew even after Fed Chair Jerome Powell signaled that the central bank is in no rush to lower rates, citing strong growth, a robust labor market, and persistent inflationary pressures. Additionally, speculation is rising that China could announce more stimulus measures during key political meetings this month, which could further boost demand in the world’s largest consumer of metals. Silver, along with other precious metals, also benefited from increased safe-haven demand amid political turmoil in France and South Korea, as well as ongoing conflicts in Eastern Europe and the Middle East.

Copper futures climbed above $4.17 per pound on Friday, approaching four-week highs, driven by expectations that Chinese authorities may announce additional policy support measures during key political meetings this month. The Politburo's decision to forgo a readout of its regular November meeting has fueled speculation that stimulus could be forthcoming, as China, the world’s second-largest economy, faces growing uncertainties, including the return of US President-elect Donald Trump. Trump recently issued two tariff threats, including a warning to impose a 100% tariff on BRICS nations if they create a currency to rival the US dollar. Meanwhile, recent data indicated that Chinese manufacturing activity expanded for the second consecutive month in November, further strengthening the demand outlook for copper.

Aluminum futures increased 219 USD/Tonne or 9.19% since the beginning of 2024, according to trading on a contract for difference (CFD) that tracks the benchmark market for this commodity. Historically, Aluminum reached an all time high of 4103 in March of 2022.

Nickel futures rebounded to around $16,200 per tonne from a 4-year low, fueled by concerns over Indonesia, the world’s largest nickel producer, tightening its mining policies. Reports indicate that approved mining quotas could decline by up to 27% by 2026, and the government plans to reduce license fees for low-grade nickel ore (less than 1.5% nickel content) used in battery production. This policy could restrict nickel availability for industries like stainless steel manufacturing. Additionally, nickel ore imports to Indonesia surged 50-fold year-on-year to over 9.3 million tons between January and October 2024, reflecting efforts to preserve domestic reserves. Officials have repeatedly warned of dwindling nickel stocks, emphasizing the need to prioritize domestic industries and stabilize prices, according to the mining minister.

Wheat futures rose to nearly $5.5 per bushel, reaching a two-week high amid concerns over deteriorating Russian winter wheat conditions and Ukraine’s wheat shipping disruption. Analysts predict that 37% of Russia's winter crops are in poor condition compared to just 4% a year ago, marking the worst assessment on record. Moreover, many of these crops may need replacement with spring plantings, creating uncertainty around next year’s harvest. Further supporting prices, Ukraine’s wheat shipping capacity faces potential threats, with its 2024-25 wheat exports projected to decline by 14% year-on-year. However, Argentina’s wheat production may exceed earlier forecasts, as farmers report better-than-expected yields during the ongoing harvest, tempering price gains.

Lumber prices fell below $600 per thousand board feet after reaching an eight-month high of $615 in mid-November, reflecting a softened demand outlook for construction materials.

Source: tradingeconomics.com , LSEG Workspace, Ventum Financial

Trump’s Second Presidency and its Potential Effects on Canadian Investments

Sun, 24 Nov 2024 18:10:41 GMT

As Canadians, we often view US elections through the lens of their impact on our largest trading partner. But as investors it’s equally important to understand how changes in the White House could ripple through the markets-and into our portfolios. Trump’s second Presidency is bound to be a time of uncertainty as is already evidenced by his unorthodox cabinet position choices to date. Canadian investors must prepare for various outcomes, employing sound strategies to weather potential volatility and also to seize opportunities.

Key Considerations for Canadian Investors

President Trump’s previous tenure was characterized by economic policies that prioritized deregulations, tax cuts and protectionist trade measures. While these moves were beneficial for certain US industries, they had mixed implications and results on Canadian markets.

1. Trade Relations and Segment Impacts

Trump 2.0 most likely will continue with “America First” trade policies including his much declared tariffs policies which would ultimately force many nations to consider renegotiating trade agreements. For Canadian exporters, especially in industries related to automotive, energy, and agriculture such changes present challenges. These challenges might also encourage innovation and diversification within these same Canadian industries opening investment opportunities.

2. Currency Fluctuations

Historically, trade protection policies and geopolitical uncertainty have influenced the exchange value of the Canadian dollar against the US greenback. Often it translates into volatility in this core exchange rate which affects Canadian exporters and investors holding US-currency assets. Currency hedging offers some protection, but the true test of a portfolio against currency volatility is diversification for a long-term strategy.

3. Energy & Commodities

Drill, drill, drill. These three words have been a mainstay of US policies since Obama and its unlikely to change in Trump’s second term. This would typically be positive for Canadian oil exports to the US, but it can also intensify global competition in energy markets. Resource-heavy portfolios may need a second look and careful consideration of rebalancing to protect against over amplification of any negative headwinds.

Positioning Portfolios for Dynamic Future

Value investing, as a core investment philosophy, advocates investing strategies that prioritize long-term value, a margin of safety and diversification. In light of a potential turbulent economic market due to the uncertainty of Trump’s policies combined with geopolitical unrest, this philosophy offers a solid foundation for Canadian investors.

Focus on Intrinsic Value. During volatility the intrinsic value of investments is typically more important than market sentiment. Strong fundamentals such as solid balance sheets, steady cash flow and resilient business models may be better situated to weather economic fluctuations.
Diversify Geographically & Sectorally. Is it time to rebalance your portfolio across asset-classes, geography and within different industry sectors? A well-diversified portfolio is a hallmark of being able to offset volatility. Explore opportunities in sectors outside the traditional including healthcare, green energy and technology which may offer different growth potential regardless of political shifts.
Maintain a Margin of Safety. Value investing’s father, Graham, esphasized avoiding overvalued investments and assessing downside risks. This is even more important in uncertain periods. Stability and income through alternate asset classes such as bonds, dividend-paying equities can offer a defensive position, as well as increasing potential cash reserves.

Long-Term Resiliency Against Short-Term Uncertainty

One of the most important things to remember is staying focused on your long-term goals through effective investment strategies. As US elections roll around every four years, we can often get caught up in the drama of the outcome, candidates and their most outrageous statements. In truth, election trail policy statements rarely come to fruition through both elected houses in their original formats. These policies may influence markets short-term but sound strategies can ensure your portfolio remains resilient.

Taking Action

At McBride Wealth Management and Ventum Financial , we specialize in helping Canadian investors navigate complex markets with clarity and confidence. Whether you’re concerned about currency exposure, sector-based risks or more importantly opportunities in diversification, our team is here to provide tailored advice to your personal situation.

Looking to make a change, want a second opinion, or looking for additional advice? Feel free to reach out to me any time by phone or email .

Author Steve McBride, Investment Advisor, Ventmm Financial, looks forward to connecting with you about your future wealth management needs.

Sources :

1. The Globe and Mail: How a second Trump presidency could affect Canada’s economy

2. Financial Post: America's trading partners brace for impact after Trump win

3. FMP: Trump's Nominations Signal Market Volatility

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Weekly Commodities Report - November 22, 2024

Fri, 22 Nov 2024 19:33:35 GMT

This week, the CRB Commodity Index has seen notable fluctuations, reflecting broader market trends. The index fell to 336 points, down from a recent high of 341 points, primarily due to a decline in energy prices, with WTI crude oil dropping below $70 per barrel amid concerns over demand from China.

WTI crude oil futures slipped below $70 per barrel on Friday but remained on track for a weekly gain of nearly 4.3%, marking the best performance in two months, driven by escalating tensions between Russia and Ukraine. Earlier this week, Ukraine fired its second Western-supplied missile into Russia, while Kyiv’s air force reported that Russia launched its first intercontinental ballistic missile at Ukraine on Thursday in response to the attack. Markets are nowturning their attention to the OPEC+ meeting on December 1st, amid speculation that output increases may again be postponed. Meanwhile, China unveiled measures to boost foreign trade, with expectations of increased energy product imports. However, weaker-than-expected flash PMI data for the Eurozone highlighted deteriorating business conditions in the region during November.

European natural gas futures eased to below €47.5 per megawatt-hour, tracking the pullback in other gas benchmarks to ease from a one-year high of €48.7 as the outlook of higher LNG export capacity from the US limited risks from supply disruptions from Russia. Russian gas exports to Europe via Ukraine were stable through the week despite ongoing contract disagreements between Gazprom and the Austrian OMV, which caused flows to temporarily be halted on Saturday. Still, the outlook of supply to Europe remained uncertain in coming weeks as data from EUstream indicated that low requests through Austria and Slovakia remained below levels from before the supply halt, lifting prices. This took place as flows through Ukraine are due to end by the end of December due to attritions in the Russia-Ukraine war.

Gold climbed $2,680 per ounce on Friday, rising for the fifth straight run, and on track to gain nearly 5% this week, as investors turned to safe-haven assets amid increasing geopolitical risks. Earlier this week, Ukraine launched its second Western-supplied missile into Russia, while Kyiv’s air force reported that Russia fired its first intercontinental ballistic missile at Ukraine on Thursday in retaliation. Meanwhile, markets continued to assess the Federal Reserve’s monetary policy outlook after US jobless claims unexpectedly fell, adding to speculation about a slower pace of Fed rate cuts. Traders also weighed remarks from Fed Bank of Chicago President Goolsbee, who suggested that interest rates could move "a fair bit lower" and expressed confidence that inflation is easing toward the target. Most of the market still expects a 25bps rate cut in December, which would lower the opportunity cost of holding non-interest-bearing gold.

Steel rebar futures were above CNY 3,300 per tonne in November, the highest in over one month, as markets reassessed the impact of China’s economic aid on ferrous metal demand. New infrastructure investment in China rose by 4.3% in the first 10 months of the year, raising the possibility that monetary and fiscal support measures from Beijing may be lifting economic activity. Beijing passed a $1.4 trillion debt package for local governments to swap out hidden debt and lower their financing costs to stimulate the economy, following a batch of slashes in lending and liquidity rates by the PBoC. In turn, steel production in China rose to 81.9 million tons in October, despite low orders from domestic consumers. Consequently, Chinese mills have flooded export markets despite growing trade barriers by other governments, with exports in the period rising to 11.2 million tons, the second-highest on record.

Iron ore for cargoes with 62% iron ore content held steady since touching a one-month-and-a-half low of $102 in mid-November as markets assessed the outlook of ferrous metal demand in China and whether trade barriers will prevent Chinese steel producers from exporting goods next year. Steel production in China rose to 81.9 million tons in October to spur bets that the series of monetary stimulus measures by the PBoC could have positively impacted demand for housing and manufacturing. In turn, China exported 11.2 tons of steel in the period, the second highest on record, as mills adapted to high domestic capacity by sourcing clients from abroad. Still, the rising momentum of protectionist policies and growing accusations of dumping by China threatened how the world’s top producer relies on foreign markets for sales targets, pressuring iron demand.

Lithium carbonated rose to CNY 79,000 per tonne after having traded near the three-year low of CNY 71,000 through late October, benefiting from supply curbs and an uptick in demand. The Chinese government enacted subsidies allowing people to trade older cars for electric vehicles in their latest push to support the sector, raising expectations that battery manufacturers may soon begin restocking lithium inputs. Despite relatively high stocks from a historicalstandpoint, battery manufacturers also reportedly raised purchasing activity amid risks of a trade war after Trump assumes office next year in the US. In turn, the plunge in prices during the year drove multiple mines in Australia and China to close or cut costs, resulting in 190 tons of lithium mine curtailments since 2023.

Soybean futures fell below $10 per bushel from a one-month high of $10.3, pressured by weaker biofuel demand under the incoming Trump administration and expectations of reduced Chinese imports. China, the top soybean importer, is projected to cut imports by 9.5% to 98.8 million metric tons by September 2025, following pre-election stockpiling amid trade concerns. Meanwhile, Russian wheat exports slowed due to weak demand and new export regulations to curb domestic price hikes.

Corn futures rose to $4.20 per bushel, reaching a two-week high amid strong demand and supply concerns. Export demand remained robust, underscored by a USDA sale announcement of 3.9 million bushels for the current marketing year. The weekly EIA Petroleum Status report indicated that ethanol production reached 1.081 million barrels per day for the week ending October 23, an increase of 39,000 bpd from the previous week, while stocks declined by 52,000 barrels to 22.223 million. Current estimates show that corn bushels used for ethanol production are slightly below the USDA's target of 5.45 billion bushels for 2024-25, however, ethanol production typically peaks in the summer when driving demand is highest. Additionally, supply disruptions in Ukraine and the Middle East further impact the market, with concerns over exports from the Black Sea region contributing to global supply constraints and subsequent price increases.

US natural gas futures fell to $3.2/MMBtu after touching a one-year high of $3.35 on November 21st amid an ample output next year. The EIA noted that US drillers are expected to raise output for the first time since the pandemic next year amid higher export capacity and global demand for US LNG. Still, prices remained nearly 20% higher in November as forecasts of colder weather expedited expectations on the start of storage withdrawing season. Data from the EIA showed that gas storage fell by 3 billion cubic feet on the week ending November 15th instead of expectations of a 5 billion cubic feet build, as relatively low prices in the prior week drove producers to cut output. In turn, the most recent forecasts pointed to colder-than-usual temperatures on the West Coast and most of the nation besides the Gulf Coast. In turn, supply concerns in Europe ahead of the turn of the year drove LNG feed gas flows to rise to a 10-month high, limiting domestic supply.

US gasoline futures settled around $2.05 per gallon, a two-week high as investors were evaluating mixed supply signals and the impact of geopolitical tensions on oil prices. The API recently noted a 2.48-million-barrel decline in gasoline inventories, supporting gasoline prices. However, EIA data reported a 2.05-million-barrel build in gasoline stockpiles for the week ending November 15th, surpassing the forecasted 1.62-million-barrel increase and easing concerns about supply constraints. Meanwhile, U.S. crude inventories rose by 545,000 barrels, surpassing forecasts and aligning with projections of a potential 2024 surplus driven by weakening demand in China and record-high production, adding downward pressure to crude prices.

Silver prices rose above $31 per ounce on Friday, rebounding after two consecutive days of declines, supported by increased safe-haven demand amid escalating tensions in the Russia-Ukraine conflict. Russian President Vladimir Putin warned on Thursday that the conflict is escalating toward a global confrontation, citing Ukraine’s use of US and British-supplied weapons to target Russia. He added that Russia had retaliated by deploying a new hypersonic medium-rangeballistic missile against a Ukrainian military facility, with the possibility of further strikes. Meanwhile, investors continued to assess the outlook for US Federal Reserve monetary policy in light of the latest economic data and central bank statements. Markets are currently pricing in a 60% chance that the Fed will cut rates by 25 basis points in December, with some traders anticipating a temporary pause.

Copper futures fell below $4.10 per pound on Friday, extending losses from the previous session as the dollar continued to strengthen. This was driven by expectations that US president-elect Donald Trump’s policies, particularly on tariffs, immigration, and taxes, could fuel inflation and limit the Federal Reserve’s capacity to lower borrowing costs. Concerns over insufficient stimulus measures from China, the world’s top copper consumer, also weighed on thedemand outlook. Investors are now awaiting China’s decision on its one-year medium-term lending facility rate next week, looking for potential additional policy support. Meanwhile, copper spot treatment and refining charges in China showed signs of improvement as smelters scaled back production after several years of rapid expansion. Copper inventories in the country have also been declining, currently sitting below August levels, with seven days' worth of supply readily available.

Aluminum futures rose to $2,675, the highest since reaching the five-month high of $2,710 on November 7th amid lower supply from major producers, while markets continued to assess the impact of Chinese stimulus on manufacturing demand. China announced it will end tax rebates on exports of semi-manufactured aluminum products in December, removing around five million tonnes of supply from the international market, according to market players’ estimates. In turn, bauxite prices approached a record high as Guinea blocked Emirates Global Aluminum’s exports from the country. The halt from the world’s top miner added to lower bauxite output from Australia and Jamaica, squeezing Chinese smelters out of their supply and reducing ore inventory to its lowest since 2015.

Nickel futures rebounded to around $15,750 per tonne from a 4-year low, fueled by concerns over Indonesia, the world’s largest nickel producer, tightening its mining policies. Reports indicate that approved mining quotas could decline by up to 27% by 2026, and the government plans to reduce license fees for low-grade nickel ore (less than 1.5% nickel content) used in battery production. This policy could restrict nickel availability for industries like stainless steel manufacturing. Additionally, nickel ore imports to Indonesia surged 50-fold year-on-year to over 9.3 million tons between January and October 2024, reflecting efforts to preserve domestic reserves. Officials have repeatedly warned of dwindling nickel stocks, emphasizing the need to prioritize domestic industries and stabilize prices, according to the mining minister.

Wheat futures climbed to around $5.50 per bushel, rebounding from a 10-week low, as concerns over global supply and potential export disruptions mounted amid escalating Ukraine-Russia tensions. The International Grains Council (IGC) lowered its 2024/25 global wheat production forecast by 2 million metric tons to 796 million tons, citing tighter supply expectations. Geopolitical risks added further pressure, with Ukraine launching British Storm Shadow cruise missilesinto Russia for the first time, following its use of U.S. ATACMS missiles earlier in the week. In response, Russia reportedly fired an intercontinental ballistic missile, intensifying fears of conflict escalation between the key Black Sea grain exporters.

Lumber prices fell to $600 per thousand board feet after reaching an eight-month high of $615 in mid-November, reflecting a softened demand outlook for construction materials. US building permits extended their downturn in October dropping by a monthly 0.6%, from the previous month’s 3.1% decline. Housing starts in the U.S. also fell 3.1% in October, below expectations, with the broader trend showing continued challenges, with rising new home inventory and mortgage rates nearing 7%. Rising mortgage rates, now at 6.84%, are further dampening new construction activity, reducing demand for building materials, and potentially driving prices down as competition among developers decreases. This rise aligns with Fed Funds futures reflecting a growing market shift, with fewer investors expecting a rate cut next month, as persistent inflation and signs of economic strength reinforce the case for a hawkish Federal Reserve stance.

Source: tradingeconomics.com , LSEG Workspace, Ventum Financial

Weekly Commodities Report - November 15, 2024

Mon, 18 Nov 2024 17:35:18 GMT

The CRB Commodity Index fell to 336 points from a one-month high of 341 following Donald Trump’s US election victory. WTI crude dropped below $70 per barrel, pressured by China’s subdued demand outlook. In contrast, U.S. natural gas futures surged over 6% due to storm Rafael's impact on Gulf of Mexico production. Meanwhile, Gold slid below $2,670 per ounce as markets anticipated U.S. inflation data and Federal Reserve speeches, assessing interest rate path under Trump’s presidency. Moreover, Silver fell to $31.3 per ounce amid concerns over limited Chinese stimulus and a higher U.S. rate outlook. Among grains, soybean futures climbed above $10 per bushel, driven by fears of new U.S.-China trade barriers. Meanwhile, wheat futures dipped to $5.6 per bushel following a lackluster USDA report with marginal changes.

WTI crude oil futures declined 2.4% to settle at $67 per barrel on Friday, booking a weekly loss of 5%, pressure by concerns over China’s waning demand and stronger US dollar. China’s crude processing dropped 4.6% in October, reflecting slower factory output and persistent demand issues. Additionally, the IEA and OPEC both revised down their global demand growth forecasts, with the IEA predicting a 1 million barrel per day supply surplus in 2025. OPEC also cut its 2023 and 2025 demand outlooks, citing weakness in key markets like China and India. Further weighing on prices is the stronger US dollar, which surged to a 2-year high, reducing the appeal of dollar-priced commodities. Data from the US Energy Information Administration showed that US crude inventories rose by 2.1 million barrels last week, exceeding expectations of a 1.9 million-barrel rise.

European natural gas futures have been trading around €45 per megawatt-hour, close to their highest level since November 2023, as colder weather increases demand. The drop in temperatures, combined with weak wind power output, has pushed up gas consumption for electricity. Forecasts show temperatures staying in the low single digits until late December. Gas storage withdrawals have been ongoing since November 3, with European reserves at 93.04% full. Concerns over a potential end to the Russia-Ukraine gas transit deal also add to market uncertainty. Despite this, gas supplies from Norway and LNG cargoes remain steady. Slovakia's SPP is taking steps to secure its supply, including a pilot deal with Azerbaijan's SOCAR, in case Ukrainian transit ends.

Gold traded around $2,560 per ounce on Friday, heading for its worst weekly performance since June 2021 driven by a strong US dollar and reduced expectations for Federal Reserve rate cuts, which weakened the appeal of non-interest-bearing gold. On Thursday, Federal Reserve Chair Powell indicated that there was no immediate need to lower interest rates, pointing to a resilient economy, a robust labor market, and persistent inflation. Powell’s stance aligns with other Fed officials advocating for a cautious approach to monetary policy adjustments. Following his remarks, market confidence in a December rate cut diminished, with traders now assigning a 58% probability, down from 80% prior to the speech. Additionally, investors believe that Trump’s incoming administration could push for higher trade tariffs, tax cuts, and increased deficit spending, which may drive inflation higher, further limiting the Fed's ability to reduce borrowing costs.

Steel rebar futures fell to CNY 3,180 per tonne in November, the lowest in one-and-a-half months, as fresh evidence of high supply pressed against a pessimistic outlook for demand. New data showed that steel production in China rose for the first time in four months to 81.9 million tons in October, despite low orders from domestic consumers. Consequently, Chinese mills have flooded export markets despite growing trade barriers by other governments, with exports in the period rising to 11.2 million tons, the second-highest on record. In turn, Beijing passed a $1.4 trillion debt package for local governments to swap out hidden debt and lower their financing costs to stimulate the economy, but the lack of new direct stimulus flows limited hopes that demand would rise enough to spur new manufacturing and construction activity. The low demand for housing and property investment in China jeopardizes the health of major Chinese developers, among the largest steel consumers in the world.

Iron ore prices for cargoes with 62% iron content slipped toward $102 per tonne, weighed down by persistent weakness in China’s property sector, which is a key driver of the country’s steel consumption. Data revealed that property investment in China dropped by 10.3% in the first 10 months of the year, while new home prices in October saw their largest decline in over nine years. Earlier this week, China’s finance ministry unveiled tax incentives for home and land transactions in a bid to support the struggling property sector, but the move failed to spark investor optimism. On the supply side, ANZ reported that iron ore shipments from Australia’s key terminal, Port Holland, reached 45.6 million tonnes in October, bringing the year-to-date total to 472.3 million tonnes—its highest level in four years. Meanwhile, an industry report highlighted that iron ore stockpiles at Chinese ports have been rising, driven by passive restocking from portside traders.

Lithium carbonate prices have stabilized since hitting a three-year low of CNY 71,500 per tonne in late October, driven by overcapacity in China’s electric vehicle (EV) battery sector. Producers reduced input prices across the supply chain as government subsidies fueled a surge in EV battery oversupply. This oversupply caused lithium carbonate prices to drop 23% year-to-date, following an 80% plunge in 2023. Despite the surplus, global supply is projected to rise by nearly 50% this year, as producers pursue new projects in anticipation of future market equilibrium. Chile announced plans to double output over the next decade, while China expanded its presence in Africa to secure battery metals. Additionally, Rio Tinto entered the lithium market with a $6.7 billion acquisition of U.S.-based Arcadium Lithium. Weighing further on prices, the EU imposed tariffs of 17% to 36.3% on EVs manufactured in China.

Soybean futures fell below $10 per bushel from a one-month high of $10.3, on expectations of lower demand amid unfavorable environment for biofuel industry under new Trum administration. President-elect Donald Trump’s nominee for the U.S. Environmental Protection Agency (EPA) head, Lee Zeldin is expected to weaken the Renewable Fuel Standard Program that requires transportation fuel sold in the United States to contain a minimum volume of renewable fuels. Additionally, China, the world’s top soybean importer, is expected to cut its imports by 9.5% for the marketing year ending September 2025, lowering demand from 109.4 million metric tons to 98.8 million tons. Chinese buyers have been stockpiling ahead of the U.S. election, anticipating that trade tensions with the U.S. may worsen under Trump’s return. Meanwhile, Russian wheat exports have also slowed, as demand remains weak and a new export regulation is introduced to curb domestic price hikes.

Corn futures held around $4.30 per bushel, close to the one-month high of $4.31 seen November 8th, amid expectations of reduced supplies in the U.S. The USDA's November WASDE report lowered U.S. corn yield to 183.1 bushels per acre, down from October's 183.8 bushels, reducing total production by 60 million bushels to 15.143 billion for the 2024/25 marketing year. This adjustment reflects the impact of late-season dryness in the Midwest, which affected yields. Although the USDA also reduced its ending stocks forecast for 2024/25 to 1.9 billion bushels, the stocks remain relatively comfortable compared to historical levels. Furthermore, the global supply situation is tightening, with reduced production forecasts for major producers, such as Brazil and Ukraine, adding to upward pressure on prices. However, trade uncertainties and the potential for tariffs under the new U.S. administration tempered market expectations for demand.

US natural gas futures US natural gas futures fell toward $2.8/MMBtu after the EIA's storage build report showed supply remains robust. While US utilities added 42 billion cubic feet of natural gas into storage last week, slightly below the expected 43 bcf build, gas in storage is now 6.1% above the seasonal norm. This marks the fourth consecutive week of above-average storage builds, a trend not observed since October 2022. While heating demand is expected to increase later in November as colder weather sets in, forecasts indicate warmer-than-usual conditions through November 20, with temperatures nearing average from November 21-27. Production has also dropped, with average output in the Lower 48 states at 100.0 bcfd so far in November, down from 101.3 bcfd in October. The recent decline, which saw production hit a nine-month low of 98.3 bcfd on Tuesday, was partly due to disruptions from Hurricane Rafael impacting the Gulf of Mexico.

US gasoline futures held around $2 per gallon, pressured by falling oil prices and reduced seasonal demand as colder weather sets in. Gasoline prices largely follow crude oil trends, which remain below $70 per barrel due to record-high US oil production and weak demand from China's slowing economy. In August 2024, US oil output reached an unprecedented 13.4 million barrels per day. Despite this, US gasoline inventories dropped by 4.4 million barrels last week, according to the Energy Information Administration, contrary to analysts' expectations of a 600,000-barrel increase. The total stockpile of 206.9 million barrels is the lowest seen since November 2022.

Silver prices stabilized around $30.30 per ounce on Friday but were still on track to post a fourth consecutive weekly decline, as a strengthening US dollar continued to weigh on the precious metal. The dollar’s rally was driven by expectations of fewer Federal Reserve rate cuts, following comments from Fed Chair Jerome Powell on Thursday. Powell indicated that the central bank is in no rush to lower rates, citing a strong economy, a solid labor market, and persistent inflation. In response, markets sharply reduced the probability of a quarter-point rate cut at the Fed's December meeting, with the odds dropping to around 59%, down from 82.5% the previous day. Silver also faced additional pressure from Donald Trump’s election victory, as markets anticipated inflationary policies and a more aggressive stance toward China, which could dampen demand for the metal. Meanwhile, mixed economic data from China further clouded the demand outlook in the world’s top consumer of metals.

Copper futures stabilized around $4.08 per pound on Friday but were still on track for their worst weekly performance in four months, weighed down by persistent demand concerns and a strengthening US dollar. Investors were disappointed by Beijing’s latest support measures aimed at stabilizing the economy, despite the finance ministry unveiling tax incentives for home and land transactions on Wednesday. Eagle Metal International, a major copper importer in China, emphasized that more robust economic stimulus is needed to bolster copper demand in the country. Adding to the pressure, Chinese economic data for October came in mixed, further clouding the demand outlook in the world's top metals consumer. Meanwhile, the US dollar continued to rally after Federal Reserve Chair Jerome Powell signaled that the central bank is in no hurry to cut interest rates, citing the strength of the US economy.

Aluminum futures fell to $2,625 per tonne from the five-month high of $2,710 touched on November 8th and tracking the decline in other base metals after China refrained from delivering targeted stimulus injections. China announced a $1.4 trillion package for local governments to swap off-balance sheet debt with Beijing and aid their access to better financing, but refrained from targeting flows to specifically stimulate consumption, driving markets to pare expectations of more aggressive measures that would aid manufacturing demand. Still, aluminum continued to outperform other base metals in the year as a supply crisis for alumina lifted inputs for producers. In the meantime, bauxite prices approached a record high as Guinea blocked Emirates Global Aluminum’s exports from the country. The halt from the world’s top miner added to lower bauxite output from Australia and Jamaica, squeezing Chinese smelters out of their supply and reducing ore inventory to its lowest since 2015.

Nickel futures dropped below $15,800 per ton, marking a 2-week low, following declines in other base metals, as the market reacted to a lack of strong stimulus from China. Despite the government announcing a CNY 10 trillion debt swap package to help local governments manage debt and access cheaper loans, investors were disappointed by the limited impact on manufacturing, which dampened expectations for industrial demand, including nickel. Still, nickel prices remain above the October low of $15,730 due to supply concerns from Indonesia, the world’s largest nickel supplier. Indonesia is facing challenges with issuing mining licenses, and many smelters are turning to imports from the Philippines. Additionally, Indonesia plans to expand its export bans, including nickel ore, which could further tighten global supply.

Wheat futures slipped below $5.4 per bushel, marking a 10-week low as the U.S. dollar surged to its strongest level since May, while rain in U.S. cropping areas improved the supply outlook. The Commodity Weather Group forecast significant moisture for U.S. wheat regions affected by dryness, while rainfall in the Black Sea, a major wheat export hub facing drought conditions, is expected to support next year’s crop. The USDA reported that 44% of U.S. winter wheat is rated good to excellent, a 3-point improvement following recent rains. Meanwhile, Russia, the world’s leading wheat exporter, has shipped grain at near-record levels despite low prices and domestic restrictions, reaching 45% of its estimated 60 million-ton export capacity this season. In contrast, EU wheat exports dropped 30% year-over-year to 8.34 million tons by November 10.

Lumber prices surged to $610 per thousand board feet, marking an eight-month high amid concerns of supply and evidence of steady demand. The outlook on supply out of Canada took a hit after Canfor’s mill shut down and Western Forest Products curtailed output, reducing North American lumber capacity by over 3 billion board feet in 2024. The developments added to supply pressured driven by infestations in North America and export restrictions out of Russia. On the demand front, Canadian building permits soared by 11.5% from the previous month in September, well above expectations of a 1.7% increase.

Source: tradingeconomics.com , LSEG Workspace, Ventum Financial

Weekly Commodities Report - November 8, 2024

Mon, 11 Nov 2024 17:36:48 GMT

WTI crude oil futures fell below $72 per barrel on Friday but remained on track for a weekly gain as supply risks eased and investors assessed the potential impact of the incoming Trump administration. Hurricane Rafael, which disrupted U.S. crude production, is projected to move gradually westward over the Gulf of Mexico, lessening its impact on oil fields. Downward pressure was further driven by a 9% drop in China’s crude imports in October—the sixth consecutive year-on-year decline—along with rising U.S. crude inventories. Meanwhile, investors believe that a Trump presidency could, on one hand, lower oil prices by boosting U.S. production and imposing tariffs that may weigh on China’s economy, the world’s largest oil importer. On the other hand, Trump’s administration might impose stricter sanctions on oil-producing countries like Iran and Venezuela.

European natural gas futures rose above €42 per megawatt-hour and are on track for a 9% weekly increase due to colder weather forecasts and reduced wind power expected next week. Updated weather models predict temperatures at seasonal averages for the coming days but colder conditions, with some frosty nights, moving in from the east later. This would increase gas demand for power generation due to low wind energy output, prompting more withdrawals from storage, which is currently 94.43% full. Additionally, markets are considering potential impacts from Donald Trump's U.S. presidential win, especially his position on Ukraine and LNG export projects, which could affect future supply. Meanwhile, gas flows from Russia to Europe through Ukraine remain consistent.

Gold prices eased on Friday but stayed around $2,700 as markets reacted to the implications of Donald Trump’s presidency and the latest Fed interest rate decision. The Fed lowered interest rates by 25 bps as expected on Thursday, while signaling a cautious and deliberate stance on any further rate cuts. Still, markets are factoring in higher interest rates from the Fed, as the new U.S. president's policies—focused on raising tariffs, cutting taxes, and deregulation—are expected to increase deficits and drive inflation. Meanwhile, the demand for gold remained strong. The World Gold Council reported that global physically-backed gold exchange-traded funds experienced inflows for the sixth consecutive month in October. Additionally, gold prices may get an extra boost from new Chinese stimulus aimed at raising local governments' debt ceiling to 35.52 trillion yuan, allowing them to issue six trillion yuan in additional special bonds over three years to swap hidden debt.

Steel rebar futures slumped to CNY 3,230 per tonne in November, the lowest in over two weeks, as markets assessed the impact that fresh stimulus from China may have on ferrous metal demand. In the conclusion of its week-long meeting, the Standing Committee of the People’s National Congress announced a $1.4 trillion debt package to allow local governments to swap out hidden debt and lower their financing costs to stimulate the economy. Still, the measures underwhelmed investors due to the lack of significant new stimulus, driving steel benchmarks to track the decline in major construction equities. Calls for government support were centered around poor demand for housing in China, which drives major developers to struggle with solvency issues amid poor sales, jeopardizing the health of companies that are among the largest steel consumers in the world. This was underscored by the official construction PMI falling to a record low of 50.4 and house prices sinking by 5.7% annually.

Iron ore prices for cargoes with 62% iron content climbed back above $105 on Friday, driven by investor optimism ahead of expected stimulus announcements from China as the National People’s Congress meeting concludes. The country’s legislature is anticipated to approve significant increases in government debt and spending to stimulate economic growth. Markets are also betting that Beijing will introduce more aggressive policy measures to mitigate the impact of higher tariffs under a Donald Trump presidency. Meanwhile, data released earlier this week showed that China’s trade surplus widened more than expected in October, with exports surging while imports declined, providing further support to the outlook for economic growth.

Lithium carbonate prices remained steady since touching the over-three-year low of CNY 71,500 per tonne in late October as overcapacity for electric vehicle batteries in China drove producers to lower asking prices for inputs across the supply chain. Subsidies from the Chinese government triggered a large wave of oversupply of EV batteries and drove carbonate prices to fall 23% this year after an 80% plunge in 2023. Despite the glut, market players expect global supply to soar by nearly 50% this year as hopes of eventual balance drove producers to search for new projects. Chile signaled it would double output over the next decade, and the race to secure battery metals drove China to expand projects in Africa. Also, Rio Tinto aimed to enter the lithium market by buying US-baed Arcadium Lithium for $6.7 billion. Adding to the bearish pressure, the EU placed tariffs against China-based EV manufacturers ranging from 36.3% to 17%.

Soybean futures rebounded to $10 per bushel as Donald Trump's victory in the U.S. presidential election raised concerns about potential new trade barriers with China. China, the largest importer of U.S. soybeans, accounts for approximately 40% of total U.S. exports. Despite this increase, prices are expected to decline in the medium term due to ample supply. Argentina’s soybean production forecast for 2024/25 has been raised to 52 million metric tons, with planted area projected to grow by 7% to 44 million acres, marking the largest increase since the 2015–16 season. In Brazil, planting is progressing, with 52.9% of the expected area sown, up from 50.6% at this time last year. Brazilian soybean acreage for the 2024–25 season is projected to rise by 2.8% to 117 million acres, representing the slowest growth in a decade due to lower profit margins.

US natural gas futures rose above $2.7/MMBtu, on track for a weekly gain, driven by forecasts for cooler weather and higher heating demand than expected. At the same time, lower production levels due to pipeline issues and Gulf of Mexico curtailments ahead of Hurricane Rafael added upward pressure on prices. The storm was expected to weaken into a tropical storm as it moved across the Gulf, reducing concerns about long-term disruptions. Energy companies had already cut production in the Gulf by about 10%. Meanwhile, the U.S. Energy Information Administration (EIA) reported a 69 billion cubic feet (bcf) increase in gas storage for the week ending Nov. 1, slightly surpassing the forecasted 65 bcf and significantly higher than last year's 19 bcf gain.

US gasoline futures fell to $2 per gallon as concerns eased over Hurricane Rafael's impact on oil and gas infrastructure in the U.S. Gulf. The U.S. National Hurricane Center reported that the storm, which had shut down 391,214 barrels per day of crude oil production, is expected to weaken and gradually move away from Gulf oilfields. Additionally, US gasoline demand dropped from 9.15 million to 8.82 million barrels per day for the week ending Nov. 1, while domestic gasoline stocks and production saw slight increases.

US gasoline futures fell below $2 per gallon, a four-week low, as Israel’s recent strikes on Iran avoided critical infrastructure like crude and nuclear facilities, reducing immediate supply concerns. The restrained nature of the strikes alleviated market fears of major disruptions. As a result, oil prices slumped, with WTI crude oil futures down 6% around 67.5 per barrel. Additionally, US gasoline stockpiles rose by 900,000 barrels for the week ending October 18, defying forecasts of a 1.6 million barrel decline, further pressuring prices.

Silver fell to $31.5 per ounce, approaching the one-month low of $31.2 from November 6th as markets gauged future demand amid underwhelming stimulus from China and the higher rate outlook in the US. The Chinese government announced a package of $1.4 trillion for local governments to swap off-balance sheet debt with Beijing and improve future financing costs, but refrained from announcing new flows of stimulus to specifically target the weak consumption in the economy. This hampered the outlook for industrial metals across all sectors, pressuring silver due to its high usage in electrification, specifically solar panels. Additionally, Chinese-owned solar panel companies reportedly started to cut production after Trump’s election victory in the US threatened higher tariffs in the sector. Trump’s victory also pressured silver by raising the outlook on interest rates as the Fed is expected to keep borrowing costs high to offset expansionary fiscal policy in the upcoming administration.

Copper futures sank toward the $4.3 per pound mark on Friday, tracking the sharp decline in base metals as markets were underwhelmed about the outlook on demand after the Chinese government refrained from delivering fresh direct stimulus to its slowing economy. Top policymakers in the National People’s Congress unveiled a CNY 10 trillion debt swap package to assume off-balance sheet debt from local governments and improve their access to cheaper loans. Still, investors showed disappointment over the development of new flows dampened expectations over whether the measure will support manufacturing, hurting the outlook of demand for industrial inputs in copper. In turn, the US dollar held most of its post-election rally amid bets of higher interest rates to rein in expansionary fiscal policy campaigned by President-elect Trump, pressuring commodities priced in the greenback and limiting manufacturing demand from emerging markets.

Aluminum futures rose to $2,660 per tonne, approaching the three-week high of $2,675 touched on October 25th amid a softer dollar, consistent demand, and increasing supply concerns. The wide range of industrial uses for aluminum prevented the magnitude of sharp declines for the metal due to concerns of slowing factory output in top aluminum consumer China, recently supported by its key role in electric vehicles, solar panels, and other electrification industries. Consequently, aluminum stocks in Chinese ports fell by 20% from their peak in March to 656,000 tons. In the meantime, bauxite prices approached a record high as Guinea blocked Emirates Global Aluminum’s exports from the country. The halt from the world’s top miner added to lower bauxite output from Australia and Jamaica, squeezing Chinese smelters out of their supply and reducing ore inventory to its lowest since 2015.

Nickel futures dropped to $15,980 per tonne, reaching a six-week low, with analysts suggesting continued downward pressure due to a significant market surplus and the discovery of nickel at the Wedei prospect in Papua New Guinea. According to the Australian Office of the Chief Economist (AOCE), recent production cuts have failed to lift prices and expects weak demand to keep nickel prices soft through the remainder of 2024. Additionally, rising inventories highlight the oversupply issue, with stockpiles at major exchanges increasing by 90% since the start of the year, driven by production growth in China and Indonesia outpacing demand. Meanwhile, Indonesia, the world’s largest nickel producer aims to manage nickel ore supply and demand to support prices, according to the country's mining minister.

Wheat futures stabilized around $5.7 per bushel following new supply projections, after a brief rise to $5.8 earlier in the week. The USDA projected U.S. all-wheat plantings for 2025/26 at 46 million acres, just below the 46.1 million acres seeded in 2024/25. It also noted that U.S. farmers are expected to increase corn acreage while reducing soybean and wheat plantings for the upcoming marketing year. Meanwhile, Ukraine reported a wheat harvest of 22.3 million tons as of November 8, with Agriculture Minister Vitaliy Koval affirming that winter sowing targets for the 2025 harvest will be met despite difficult weather. Additionally, high Ukrainian wheat exports have added pressure on prices, as grain and oilseed exports by sea and river reached 5.28 million metric tons in October, up from 3.13 million tons a year earlier, according to Ukraine’s UGA traders' union.

Lumber prices rose to $550 per thousand board feet, an over six-month high on supply constrains and as optimistic US economic data lifted the demand outlook for construction materials. US GDP grew 2.8% in Q3, underscoring consumer resilience, while single-family home sales reached a 16-month high and pending home sales saw their largest jump since January 2023. Meanwhile, supply constraints in the southern part of the US drove wood mills to hike prices. Globally, restricted access to affordable wood is worsening the supply shortage in the U.S. Climate-driven infestations in Canada and Europe once helped to bolster the availability of low-cost wood, but now, a combination of reduced logging in Europe, Russia’s export ban, and heightened conservation efforts in North America is tightening the global log supply. This is particularly affecting major markets like China.

Source: tradingeconomics.com, LSEG Workspace, Ventum Financial

Weekly Commodities Report - November 1, 2024

Sun, 03 Nov 2024 15:53:46 GMT

The CRB Commodity Index fell to a six-week low of 331 points, mainly driven by declines in energy prices. WTI crude dipped to $68 per barrel after a 6% drop, the sharpest in two years as Israel’s strikes on Iran spared key oil sites. Similarly, U.S. natural gas prices dropped to $2.8/MMBtu as supply concerns eased. Moreover, soybeans slipped below $10 per bushel amid a record U.S. harvest, and wheat hit a seven-week low of $5.6 as rain improved U.S. crop conditions. Meanwhile, Copper remained near $4.3 per pound, with markets awaiting potential fiscal announcements from China’s National People’s Congress. In contrast, precious metals rallied, with gold reaching $2,750 per ounce and silver just above $34, driven by Middle East tensions and upcoming U.S. economic data ahead of the Fed's policy decision.

WTI crude oil futures rose toward $71 per barrel on Friday, advancing for the third consecutive session, as market attention shifted back to the Middle East conflict. This change was prompted by a report suggesting that Iran may be preparing to launch an attack on Israel from Iraqi territory in the coming days, with media sources indicating that the anticipated attack could involve drones and ballistic missiles. Investors remained on edge, especially following Israel's military chief's warning that a "very hard" strike on Iran would follow any further missile attacks. Oil prices were also bolstered by expectations that OPEC+ might postpone the planned increase in oil production scheduled for December by a month or longer. Additionally, China, the world’s top crude importer, saw manufacturing return to growth in October, according to both private and official surveys, indicating that stimulus measures are starting to take effect. Still, oil is set to record a weekly decline.

European natural gas futures were below €39.4 per megawatt-hour, holding the sharp decline from the 11-month high of €43.6 on October 25th amid fresh expectations of ample supply. Reports emerged stating that utilities and buyers are approaching a deal with Azerbaijan to keep Russian gas flowing into Europe after the current agreement with Ukrainian pipelines ends at the end of the year, securing supplies in the near term and reducing concerns of more dependency on LNG imports. In the meantime, unusually mild weather as the European winter approaches kept demand for gas-intensive heating at seasonally lower levels. This allowed the continent’s storage capacity to remain near 95% full ahead of the winter. Still, lingering geopolitical concerns in the Middle East kept the pullback in check.

Gold was at the $2,750 per ounce mark on Friday, holding the near 1.5% decline from the record high in the prior session as markets continued to assess demand for safety ahead of the upcoming US elections while continuing to gauge the Fed’s policy outlook. Payroll data showed that job growth in the US nearly stalled in October instead of expectations of over 100 thousand payrolls being added, although distortions from strikes and catastrophic hurricanes over the month blurred the data point’s reflection on underlying economic trends. In the meantime, political uncertainty in the US supported gold, as the prospects for another Trump presidency raised expectations of expansionary fiscal policy and higher tariffs, leading investors to hold gold as a hedge against long-term inflation risks. Additionally, lingering tensions in the Middle East continued to lift gold’s appeal.

Steel decreased 638 Yuan/MT or 16.24% since the beginning of 2024, according to trading on a contract for difference (CFD) that tracks the benchmark market for this commodity. Historically, Steel reached an all time high of 6198 in May of 2021.

Prices for iron ore cargoes with a 62% iron content steadied near $104 at the start of November as investors continued to assess the demand outlook in China, the top consumer. A private survey indicated that factory activity in China turned expansionary in October, following a series of stimulus measures from Beijing aimed at reviving growth. This report corroborated official data released the previous day, which marked the first manufacturing expansion in six months. Investors are now looking forward to potential additional stimulus measures expected to be discussed at the National People’s Congress meeting scheduled for next week, with markets anticipating announcements related to debt and other fiscal policies. Meanwhile, imported iron ore stocks at major Chinese ports have risen for the fourth consecutive week, reflecting a decline in discharge volume.

Lithium decreased 24,000 CNY/T or 24.87% since the beginning of 2024, according to trading on a contract for difference (CFD) that tracks the benchmark market for this commodity. Historically, Lithium reached an all time high of 5750000 in December of 2022.

Soybean futures dipped below $10 per bushel, nearing a two-week low, amid abundant supplies from a record U.S. crop. The USDA's latest report indicated that U.S. farmers are harvesting soybeans at the fastest rate in over a decade, reaching 89% completion as of Sunday, just shy of the 91% expected by analysts. Meanwhile, in Brazil, improved weather helped speed up soybean planting, which reached 36% of the anticipated area by October 24, according to AgRural, an 18-point jump from the previous week.

Corn futures rose to $4.20 per bushel in October, reaching a two-week high amid strong demand and supply concerns. Export demand remained robust, underscored by a USDA sale announcement of 3.9 million bushels for the current marketing year. The weekly EIA Petroleum Status report indicated that ethanol production reached 1.081 million barrels per day for the week ending October 23, an increase of 39,000 bpd from the previous week, while stocks declined by 52,000 barrels to 22.223 million. Current estimates show that corn bushels used for ethanol production are slightly below the USDA's target of 5.45 billion bushels for 2024-25, however, ethanol production typically peaks in the summer when driving demand is highest. Additionally, supply disruptions in Ukraine and the Middle East further impact the market, with concerns over exports from the Black Sea region contributing to global supply constraints and subsequent price increases.

US natural gas futures fell to below $2.75/MMBtu, declining sharply from the over four-month-high of $3.1 amid lower risk premiums and evidence of ample domestic supply. Shifting perceptions on supply risks from the Middle East triggered declines in natural gas futures among major trading hubs, largely due to Israel’s choice of striking Iran’s oil infrastructure and Tehran’s refrain from further retaliation so far. This compounded data from Wood Mackenzie suggesting that US production rose to 103 bcf per day in late October, near record highs. This was in line with the ample increase in reserves during the fourth week of the month, with EIA data pointing to a 78 bcf build. In the meantime, expectations of more moderate cold weather in the Lower 48 states limited demand for gas-intensive heating, also pressuring prices.

Silver prices rose by 0.5% on Friday, reaching $33 per ounce, as week U.S. payrolls data boosted the appeal of safe heaven assets and brought back the possiblity of speed up in interest rate cuts in the US. The US economy added only 12K jobs in October, compared to market expectations of 113K and September's downwardly revised 223K as employment have been impacted by Hurricanes Helene and Milton and strikes at Boeing. Still, silver prices are expected to finish the week at least 2% lower as economic data from Eurozone, combined with the UK’s new government budget, drove up borrowing costs and shook expectations of imminent rate cuts.

Copper climbed to around $4.35 per pound on Friday, attempting to break out of a sideways trading range as strong manufacturing activity data bolstered demand expectations in China, the top consumer of the metal. A private survey revealed that factory activity in China turned expansionary in October, following a series of stimulus measures implemented by Beijing to stimulate growth. This report also confirmed official data released the previous day, indicating the first manufacturing expansion in six months. Investors are now looking ahead to the upcoming National People’s Congress, scheduled for next week, where potential announcements regarding fiscal support measures are anticipated. Meanwhile, Chilean miner Codelco, the world's largest copper producer, reported a rebound in its copper production, generating 338,000 tons in the third quarter.

Aluminum increased 240 USD/Tonne or 10.07% since the beginning of 2024, according to trading on a contract for difference (CFD) that tracks the benchmark market for this commodity. Historically, Aluminum reached an all time high of 4103 in March of 2022.

Nickel futures dropped to $15,980 per tonne, reaching a six-week low, with analysts suggesting continued downward pressure due to a significant market surplus and the discovery of nickel at the Wedei prospect in Papua New Guinea. According to the Australian Office of the Chief Economist (AOCE), recent production cuts have failed to lift prices and expects weak demand to keep nickel prices soft through the remainder of 2024. Additionally, rising inventories highlight the oversupply issue, with stockpiles at major exchanges increasing by 90% since the start of the year, driven by production growth in China and Indonesia outpacing demand. Meanwhile, Indonesia, the world’s largest nickel producer aims to manage nickel ore supply and demand to support prices, according to the country's mining minister.

Wheat futures fell to $5.7 per bushel, marking a one-month low, as rain was predicted for dry wheat regions in southern Russia and the central US, though drought remained a concern. Early in the month, the USDA raised its global wheat supply outlook. Despite lowering its 2024/25 production estimate, the USDA increased its ending-stocks forecast to 257.72 million metric tons, exceeding expectations by 1.6 million tons. The International Grains Council (IGC) also maintained its 2024/25 global wheat production estimate at 798 million metric tons. On the bullish side, Russia, the top exporter, has set a de facto price floor by asking exporters not to sell below a minimum price, while also increasing export duties.

Lumber prices rose to $550 per thousand board feet in October, an over six-month high as optimistic US economic data lifted the demand outlook for construction materials. US GDP grew 2.8% in Q3, underscoring consumer resilience, while single-family home sales reached a 16-month high and pending home sales saw their largest jump since January 2023. Meanwhile, supply constraints in the southern part of the US drove wood mills to hike prices. Globally, limited access to cheap wood exacerbates the supply crunch in the US. Climate-related infestations in Canada and Europe once boosted affordable wood supplies, but now, reductions in logging in Europe, Russia’s export ban, and increased conservation efforts in North America are tightening the log supply, impacting major markets like China.

Source: tradingeconomics.com, LSEG Workspace, Ventum Financial

US core capital goods orders strengthen in September, but momentum ebbing

Sun, 27 Oct 2024 14:35:59 GMT

The highlights:

Core capital goods orders increase 0.5% in September
Shipments of core capital goods drop 0.3%
Non-defense capital goods orders fall 4.5%; shipments down 3.6%
Durable goods orders decrease 0.8%

WASHINGTON, Oct 25 (Reuters) - New orders for key U.S.-manufactured capital goods increased more than expected in September, but business spending on equipment likely slowed in the third quarter. Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, jumped 0.5% last month after an unrevised 0.3% gain in August, the Commerce Department's Census Bureau said on Friday. Economists polled by Reuters had forecast these so-called core capital goods orders would edge up 0.1%. Core capital goods shipments fell 0.3% after dipping 0.1% in the prior month.

Higher borrowing costs have been a constraint on business investment, though a loosening of financial conditions as the Federal Reserve prepared to cut interest rates boosted spending on equipment in the second quarter. Non-defense capital goods orders dropped 4.5% after declining 4.4% in August. Shipments of these goods dropped 3.6% after falling 2.0% in the prior month. These shipments go into the calculation of the business spending on equipment component in the gross domestic product report. Business investment in equipment rose at a brisk 9.8% annualized rate in the second quarter, contributing to the economy's 3.0% growth pace.

"The surge in aircraft shipments earlier in the quarter probably prevented overall business equipment from declining in the third quarter, but the weak September data set the stage for a softer fourth quarter," said Olivia Cross, a North America economist at Capital Economics.

Growth estimates for the July-September quarter are currently as high as a 3.4% rate. The government will publish its advance estimate of third-quarter GDP next week. Orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, decreased 0.8% after falling by the same margin in August. They were pulled down by a 3.1% drop in orders for transportation equipment, which followed a 3.4% decline in August. Motor vehicles and parts orders rebounded 1.1%. Commercial aircraft orders and parts tumbled 22.7% after declining 19.7% in the prior month. Boeing BA.N reported on its website that it had received 65 aircraft orders, up from 22 in August. Last month's rise in unadjusted aircraft orders was probably less than what had been anticipated by the model used by the government to strip out seasonal fluctuations from the data. That resulted in the negative adjusted orders number. The outlook for aircraft orders remains bleak as Boeing is reeling from a host of problems, including a six-week strike by factory workers on the West Coast, which has halted production of its best-selling 737 MAX as well as 767 and 777 wide-body planes. The striking workers on Wednesday rejected a contract offer. Boeing also reported a surge in quarterly losses.

Excluding transportation, orders rose 0.4%, building on the 0.6% gain in August. There were increases in orders of primary metals and fabricated metal products. But orders for machinery fell 0.2%. Orders for computers and electronic products slipped 0.3%, while bookings for electrical equipment, appliances and components were unchanged.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci and Paul Simao)

( Lucia.Mutikani@thomsonreuters.com )

Canada August retail sales up 0.4% on autos, drops across majority of sectors

OTTAWA, Oct 25 (Reuters) - Canada's retail sales in August increased marginally and missed expectations as consumer spending showed strains across majority of sectors, data showed on Friday. Retail sales, which comprise motor vehicles, clothing, furniture, food and beverages among others, grew by 0.4% in August on a monthly basis, slower than growth of 0.9% seen in the previous month. Analysts had forecast growth of 0.5% for August and had estimated sales excluding automotive and parts to be at 0.3%. Excluding sales of motor vehicles and at automotive parts dealers, sales dropped by 0.7% from a revised 0.3% growth in July, Statistics Canada said.

"Today's report suggests that consumer spending remains patchy, and that further reductions in interest rates will likely be needed to bring a sustained acceleration," Andrew Grantham, senior economist at CIBC wrote in a note.

September's retail numbers, which survey only half of the respondents for a preliminary estimate and are prone to revision, showed that sales likely grew by 0.4%, a flash estimate by Statscan said. The retail sales and the projection give an indication of how consumer spending has been in the month and partly informs the direction of Gross Domestic Product, a critical figure closely watched by the Bank of Canada and economists.

The BoC reduced its key policy rate by a jumbo 50 basis points this week as inflation has come below the mid-point of the bank's 1% t 3% target range, but concerns around growth have taken centre stage. GDP data for August is due next week and economists expect growth in Canada for the rest of the year to be likely slower than the central bank's projections. August retail sales totaled C$66.63 billion ($48.14 billion) and saw an increase in four out of nine subsectors. In volume terms, total retail sales grew 0.7%.

The Canadian dollar CAD= was trading 0.9% firmer to 1.3842 against the U.S. dollar, or 72.24 U.S. cents. The two-year government bond yield CA2YT=RR dropped by 2.9 basis points to 3.175%. Sales were led by a 3.5% increase in vehicles and vehicle parts, which account for more than a fourth of total sales. Food and beverages, which contribute roughly a fifth to the overall retail sales, saw the biggest drop of 1.5%. Furniture, home furnishings, electronics and appliances sales dropped by 1.4%, Statscan said.

($1 = 1.3840 Canadian dollars)

[Reporting by Promit Mukherjee; Additional reporting by Dale Smith; Editing by Nick Zieminski)

(( promit.mukherjee@thomsonreuters.com ;))

Webinar insights from Greg Valliere, AGF’s Chief Political Strategist on October 3, 2024

imarquez@echelonpartners.com (Patrick MacLean) — Fri, 11 Oct 2024 14:47:39 GMT

Here are our key takeaways from the Webinar held on Thursday, October 3rd on the US Election with Greg Valliere, AGF’s Chief Political Strategist. Greg is AGF’s ‘boots on the ground’ and Washington insider, offering excellent information and perspective on key storylines happening on Capitol Hill and their impact on the markets and the global economy.

Here’s a quick summary of the key takeaways. We’ve also included the recording and password below.

Be cautious about what the poll takers say . Their track record in the past few Elections has been mediocre at best. Trump historically does better than what the polls suggest. Keep that in mind.
Our biggest fear is a tie on November 5 ^th and no clear winner . That would give the markets uncertainty and some anxiety. We’ve seen this movie before.
Ultimately, the stock market can live with Trump or Harris . We feel Congress will be split/divided, which means less change and less regulatory uncertainty.
The key issues where they have the same opinion are i) the Deficit and ii) Trade Protectionism. Both candidates will keep spending, and the deficit will continue to grow.
The key issues where they are different are i) Monetary Policy, ii) Regulatory Policy, and iii) Trade agreements. It’s no secret that Trump could ask J. Powell for his resignation if he wins, and with respect to trade relations with Canada, we feel Harris would be more favourable.
Unfortunately, geo-political tensions and war will continue between Russia/Ukraine and Israel/Hamas. We don’t see an off-ramp anytime soon where there might a ceasefire or truce.
Finally, the biggest surprise was the Strong and Resilient US economy . The economy is on a solid footing, the job market is healthy, inflation is coming down, GDP growth in the high 2’s, and the stock market is at record highs.

To Replay the Webinar, click here and enter the password: XarUJxX5 .

Ventum Financial Corp. and Echelon Wealth Partners Complete Amalgamation

Mon, 24 Jun 2024 22:50:20 GMT

VANCOUVER, BC, and TORONTO, ON, June 24, 2024 – Ventum Financial Corp. (“Ventum” – formerly PI Financial Corp.) is pleased to announce the successful completion of its amalgamation with Echelon Wealth Partners Inc. (“Echelon”), marking a significant milestone that solidifies its position as a leading independent investment advisory, wealth management, and capital markets firm in Canada.

David Cusson, former CEO of Echelon, has assumed the role of CEO of Ventum. Jean-Paul Bachellerie, former CEO of Ventum, has assumed the role of President and COO of Ventum. This strategic alignment of leadership combines the expertise and vision of both firms to enhance client service and operational efficiency.

“With offices across Canada, and strong anchors in the east and west, we are well positioned to deliver comprehensive financial solutions tailored to meet the diverse needs of our clients,” said David Cusson, CEO of Ventum. “This amalgamation represents a significant step forward in our commitment to excellence and towards becoming the leading independent investment dealer in Canada.”

“Our combined Private Client Services and Capital Markets teams provide us with the scale needed for future success, enabling continuous investment in our platform and the provision of leading-edge tools and technology for our advisory teams,” said Jean-Paul Bachellerie, President & COO of Ventum.

For more information about Ventum, please visit our website at ventumfinancial.com.

About Ventum Financial Corp.

Ventum Financial Corp. is headquartered in Toronto, ON with key operational functions in Vancouver, BC, and is a leading independent investment advisory and capital markets firm with fifteen offices across Canada. With a steadfast commitment to integrity and client service, Ventum provides a wide array of financial services to individual, institutional, and corporate clients through our team of experienced professionals.

Media Contact:

David Cusson

CEO

Ventum Financial Corp.

Email: media@ventumfinancial.com

Phone: (416) 572-5523

Is it over?

website@sitemodify.com (Website Editor) — Mon, 17 Jun 2024 16:33:00 GMT

It seems like just yesterday that you could buy a pint of Stella for $7 or so. Now, more often than not, it is closer to $10. Yep, inflation. It is kind of like a tax on doing things, as just about everything has cost more over the past few years. Hop on a flight, eat at a nice restaurant, refinance your mortgage, the list goes on. With the benefit of hindsight, the current higher inflationary environment can be blamed on a few pretty big factors. Changes in behaviour during and coming out of the pandemic blew up supply changes, as capacity was unable to keep pace with demand. Then, of course, unprecedented money printing magnified the situation, as it made everyone wealthier and more willing to pay $10 for a pint.

Of course, the textbook solution is to raise interest rates, which is clearly occurring around the world. These monetary policy shifts are effective but do work with variable lags. Making those lags longer, or even temporally offsetting them, was fiscal policy. It doesn’t take an economist to understand if the monetary policy is trying to slow the economy to tame inflation; materially elevated fiscal spending in an economy that is still growing at a decent pace is counterproductive for the inflation fight.

Despite contrary policies, perhaps motivated by short-term thinking (or upcoming elections), inflation has taken a decent turn down and continues to cool – but clearly, not in a straight line. You can note a quicker decline in the greenish line tracking U.S. year-over-year core inflation with the latest reading after a period where little progress was made. This chart really goes back to show how inflation got started. It was initially called ‘transitory,’ and then, finally, central banks jumped into action coincidentally when inflation had already peaked. Rarely ahead of the curve, those central bankers. Inflation declined a good amount in 2023, but the previous few months in 2024 showed it picking up or being much more sticky. This latest reading has things cooling again, which is good news.

The above is U.S. inflation, but the pattern is similar around the world for the most part. Inflation and the economy in Canada have cooled enough to open the door for the Bank of Canada to cut. In fact, the number of central banks cutting rates has been on the rise, including some of the biggies like the BoC and ECB. We will talk more about U.S. inflation simply because that is what moves global markets more.

The fast or early movers in the CPI data have been improving for some time. These are the categories of CPI that simply change faster, as other components are much slower to react to changes in behaviour. Many goods categories, such as hotels, autos, and restaurants, are examples of areas of the economy that change prices rather fluidly. Rent, owner-occupied rent, and insurance are examples of areas where prices change very slowly or are even lagged in their reaction. Rents often don’t reset until the end of a lease and are further slowed by rent controls. Insurance, too, doesn’t reset often, so changes in actual prices take time to show up in the aggregate data.

This chart breaks focused on a number of early or fast movers vs slower or lagged. Clearly, since the spring of ’23, we have seen the fast-moving components showing some disinflationary pressures. But the lagged movers remained high, owing to their name. Yet of late, those, too, have finally started to turn down a bit.

Where to next?

Back down to 3% or so is likely the easy part; then things get a bit less clear cut. Helping out, there remain a number of factors that should continue to put downward pressure on inflation:

The nature of the price resetting in the lagged movers should continue to put some downward pressure on overall inflation.
Given how much of inflation is services, employment certainly matters. While nonfarm payrolls remain healthy, that is contrary to other metrics. Household survey is less enthusiastic, and temp workers remain on the decline and job openings continue a downward trend. Quitters, too, the quit rate drops should help on wages and the flow through to inflation.
Supply chain bottlenecks are very low again. And China PPI, producer prices, remain negative. Given its global manufacturing market share, lower prices for goods coming out of China is disinflationary.

But don’t get too excited. While we think inflation will likely cool a bit more, there are some counterforces that will probably limit the improvements.

Over the past few months, global trade and manufacturing activity have been turning back up. This could just be an echo coming out of the manufacturing recession of '22/early ’23, or it may have longevity. Regardless, in the near term, rising global economic activity will not help prices to go down.

Price intentions among survey data, which improved a lot last year, have stabilized. Companies will charge as much as they can, and given consumers continued fortitude to suck it up and pay higher prices, well, that keeps prices higher. There is some evidence the consumer is starting to change, but for now, they keep hitting the ask for flights, trips, dinners, etc.

Inflation may fall further, but the gains are likely getting harder to come by.

Final Thoughts

We do believe inflation is likely back to being influenced more by the economy and less by the pandemic-induced gyrating behaviours. If the economy reaccelerates, we could easily see inflation pick up again. And if the recent uptick in economic growth proves fleeting, inflation will likely back down. At the very least, this is an easier world to navigate compared to the previous years.
— Craig Basinger is the Chief Market Strategist at Purpose Investments

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.

Disclaimers
Echelon Wealth Partners Inc.
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Echelon Wealth Partners Inc. or its affiliates. Assumptions, opinions and estimates constitute the author's judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them.
Purpose Investments Inc.
Purpose Investments Inc. is a registered securities entity. Commissions, trailing commissions, management fees and expenses all may be associated with investment funds. Please read the prospectus before investing. If the securities are purchased or sold on a stock exchange, you may pay more or receive less than the current net asset value. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.
Forward Looking Statements
Forward-looking statements are based on current expectations, estimates, forecasts and projections based on beliefs and assumptions made by author. These statements involve risks and uncertainties and are not guarantees of future performance or results and no assurance can be given that these estimates and expectations will prove to have been correct, and actual outcomes and results may differ materially from what is expressed, implied or projected in such forward-looking statements. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. Neither Purpose Investments nor Echelon Partners warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. These estimates and expectations involve risks and uncertainties and are not guarantees of future performance or results and no assurance can be given that these estimates and expectations will prove to have been correct, and actual outcomes and results may differ materially from what is expressed, implied or projected in such forward-looking statements. Unless required by applicable law, it is not undertaken, and specifically disclaimed, that there is any intention or obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice.
The particulars contained herein were obtained from sources which we believe are reliable, but are not guaranteed by us and may be incomplete. This is not an official publication or research report of either Echelon Partners or Purpose Investments, and this is not to be used as a solicitation in any jurisdiction.
This document is not for public distribution, is for informational purposes only, and is not being delivered to you in the context of an offering of any securities, nor is it a recommendation or solicitation to buy, hold or sell any security.

Crisis Alpha

website@sitemodify.com (Website Editor) — Mon, 10 Jun 2024 15:34:00 GMT

If the wealth advice service were in the manufacturing industry, the portfolio would be akin to what we make. Sure, there are many value-added services in addition to the portfolio, but it’s the portfolio that has to succeed for the client to reach their long-term goals. So, the more we can think about portfolio construction, the better.
One challenge is that while portfolio construction is often based on as long a historical time period as possible, things never remain static. Markets evolve and change over time, relationships change, and the available tools in the portfolio construction toolbox also change over time. One recent change that has been a challenge is the bond/stock correlation. After a couple of decades of very low or even negative correlations between these two core building blocks, correlations are back to being positive.
The following chart shows the 2-year monthly correlation between Canadian equities and bonds. It looks rather similar for the U.S. and global markets, but we just thought some Canadian content would be nice. The higher correlation means that, more often, equities and bonds are moving in the same direction. Nobody complains when both are moving higher, like in the past 12 months, but when they move lower together, everyone starts getting grumpy, like in 2022. The 2nd line, beta, measures not just the direction of the two asset classes but the magnitude of the relative move.

This chart goes back to the 1950s, and clearly, there have been many periods of positive equity/bond correlations. But the recent memory of 2000-2020 was a really sweet spot. Equity/bond correlations were low or negative, which enhanced the benefits of diversification between equities and bonds. Now, this diversification benefit is more muted. As a possible silver lining, given yields are higher now, the return assumption for bonds is higher. So perhaps a bit less useful as a volatility management tool and a bit more on the return side – a decent trade-off.
This higher correlation has many portfolio construction practitioners looking for different sources of diversification. Of course, the proliferation of different tools has augmented this behaviour as well. Many have lower correlations, but we would caution this as the main driver of a decision.
Why do we care about correlation? In 2022, you couldn’t go a day or two without seeing an article talking about the 60/40 being dead due to higher correlations between bonds and stocks. And yet, the correlation is higher today and much fewer articles. That’s because nobody cares when equities and bonds are moving higher in unison, only when moving lower together. So, maybe we need some additional measures to augment correlations.
Here is a good lens. Using data back to the 1950s, we looked at the one-year returns for global equities and broke them down into return range buckets. Truthfully, who cares what their bonds are doing when stocks are up 20 or 30%? But we do care much more when stocks are down -20 or -30%. More impactful – bond returns were further split from periods with negative bond/equity correlations and those with a positive correlation (last two columns).

No denying periods with a negative bond/equity correlation that bonds are a better stabilizer during down markets. Eyeballing it, one could argue twice as good. But even when positively correlated, bonds, on average, are a decent stabilizer. Of course, these are averages that can hide a lot of information. There were 103 instances in which global equities were down on a 1-year basis simultaneously when the bond/equity correlation was positive. Bonds were higher in 77% of those instances. That hit rate moves up to 86% if you include periods when bonds were down minimally (less than -2.5%). Bonds, not broken.

Another useful lens is ‘Crisis Alpha.’ This is looking at an asset class or strategy’s performance during periods of stress in the market. Could be a short-term correction or a longer-term bear market. If you can add value during these periods, or at least stability, that has positive attributes for portfolio construction.

The reason we expand and show all the different instances is because each has its ideal period of market weakness, and each has episodes in which the strategy falls short. For instance, market neutral typically does well but is completely wrecked during the credit crisis. Managed futures (often a momentum strategy) did really well in 2022 but not great in a number of other periods of market weakness.
Based on this, one could make a case for managed futures, more market neutral, and a splash of gold to better diversify a portfolio. But don’t forget these are crisis periods, and there is a whole lot of time between crises. Global stocks suffer, yet over the past 20 years, they have compounded around +8%. That market neutral index has only grown at a 0.8% annualized pace over the past two decades. And the managed futures index is a bit better at 3.6%. Defence often comes at a cost.

Final Thoughts

Investors should start to think differently about portfolio construction and diversification. We do believe correlations may remain elevated for some time (a future edition will tackle this), and looking to expand sources of diversification appears prudent. Call it diversifying your diversification.
But don’t get too carried away. The simple fact is when correlations are higher, it is harder to reduce portfolio volatility. Something we may have to live with. If you go too far in trying to smooth out the ride, you may sacrifice long-term returns. Would be a bit of a pyrrhic victory to enjoy a vol of 5% if the end nest egg is smaller.
Everything in moderation – bonds still work, and some defensive diversification is clearly warranted in a more positively correlated world.

— Craig Basinger is the Chief Market Strategist at Purpose Investments

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.

This Ain't That

website@sitemodify.com (Website Editor) — Mon, 03 Jun 2024 17:56:00 GMT

The US market is up a little over 10% this year, Canada +6%, Europe +10%, and Japan +15%, while bonds are down about -1%. Huh, that sure does look like asset allocation is working well again after the car crash of 2022. Even better news is that the market is moving higher thanks to good fundamental news, not simply because central bankers are jamming more money into the financial system.
Recession risk has continued to fade, as evidenced by the survey of economists. For the UK, Canada, US, Eurozone, China & Japan, the average probability of a recession hit a high in late 2022 at about 60% and has fallen down to a mere 25% of late. The UK, which was as high as 90% and suffered two negative quarters of GDP growth, is now down to 30%, winning the most improved ribbon. Even Canada, which is clearly struggling with higher rates, has improved from over 60% to 30%. Most are clustered around the 30% zone.

The data has improved, with both markets and economists celebrating. This is good news, and perhaps this better economic data will make its way into improving earnings expectations – that’s what counts more. There has been some minor uptick of late, so again, it is encouraging. In addition to this, inflation continues to cool, for the most part, so more central banks should start to walk rates back down in the quarters ahead.
Add that all up – can we justify most equity markets sitting around fresh all-time highs? Or, even more importantly, can we expect more gains to come if this is the start of a new cycle? Fueling the optimistic view is the rising price of copper and other commodities. Copper carries an honorary PhD in economics because of its widespread use in manufacturing, often implying a rising price coincides with rising broader economic activity. And copper has been on a tear.

New cycle? This ain’t that. We would agree with the group view from economists that recession risks are diminished compared with past quarters, but would temper enthusiasm or talk of a new cycle for a number of important factors.

1) Delayed and variable confusing lags or policy

Rate hikes have slowed down economic growth, but that relationship remains intact. But this drag has been muted thanks to accumulated savings during the mobility-reduced period following the pandemic. And from very aggressive fiscal spending just about everywhere in the world, led enthusiastically by the US. The concern is these buffers are starting to roll over or become depleted, which will temper growth going forward.

2) Goods spending, then services spending, now what?

As we highlighted last month, during the stay-at-home period, we all spent money on goods. This blew up supply chains and also supercharged economic growth in 2020-21. In 2022, we all pivoted, to a degree, back to more service spending on travel, eating out, experiences, etc. This made it appear as if a recession was coming since goods spending, manufacturing, and global trade slowed. But alas, it was just a tectonic shift in spending behaviour. Now, goods spending is recovering, but is this robust demand or is it just normalizing from the depressed levels of 2022? Time will tell on this one, but our base case is this is more normalization and not the start of a new cycle.

Normalization is good news but not great news. And with accumulated savings largely depleted due to inflation and a desire to ‘live’ despite the costs, the longevity of this improved economic activity may not endure. Just look at the US consumer. We are not concerned about the level of credit card debt, given that societies are moving towards a cashless world. However, the delinquency rate is concerning, as is the same-store sales at restaurants, which are just a notch above fast food.

Not denying decent employment and wage gains are positives, but it would appear inflation has taken a toll. And those accumulated savings appear to be largely depleted. This is not the behaviour one would expect during the start of robust economic growth; in fact, it is the behaviour often seen near the end of a cycle.
1) And then there is what is priced in I won’t harp too much on valuations, as everyone kind of knows the deal. The S&P 500 at 21x forward earnings is on the high side, but this has been the case for some time. 15x for the TSX and International equities is not cheap either. The vast majority of market gains this year have come from multiple expansions.
We are not overly negative and currently are carrying just a moderate underweight in equities. However, for this market to move higher, we would need to see continued improvement in global economic growth, which may be challenging. Or inflation to come down materially, alleviating the pressure higher yields elicit on the equity markets. Possible, but not our higher probability path.
Given this we are comfortable with our moderately defensive stance.

Revising cyclical yield in the Canadian dividend space

When it comes to dividend investing, interest rates play a rather large role in determining the relative winners and losers. Not only are dividend stocks sometimes viewed as bond proxies, company earnings can also be quite rate-sensitive. It is through this lens of rate sensitivity that reveals the full spectrum of dividend stocks. On one hand, you have the highly rate-sensitive industries such as Telcos, Utilities and Pipelines and on the other are industries that are much more cyclical. We’ve long used the term cyclical yield to define these companies whose earnings depend much more on the economic cycle compared with the much more defensive rate-sensitive stocks.
Our scoring or ranking system uses a combination of an industry’s correlation to bond yields, sensitivity to bond yields (think like Beta, but instead of relative to the market, it’s relative to yields) and an out-of-sample score for periods over the past decade of rising yields. The chart to the right depicts the full spectrum of sectors/industries within the TSX. The top grouping, Cyclical Yield, are those that we would expect to hold up better in a rising yield environment. The bottom grouping, Interest Rate Sensitive, are those that we would expect to perform best in a falling yield environment.
We’ve long had a tilt across our dividend mandates towards cyclical-yielding dividend payers. Given the chart below, the cyclical yield has handily outperformed the rate sensitives over the past few years. The outperformance typically comes when yields have been rising. Looking back in the 2010s, there were brief periods when cyclical yield outperformed, but overall rate sensitives did quite well with the tailwind of falling yields. That all changed in late 2020, and cyclical yield has really not looked back.

Deciding when to switch or actively tilt between rate-sensitive vs more cyclical stocks boils down to a few key considerations.
1. Economic Indicators - Cyclicals have thrived during periods of accelerating GDP growth. The resiliency of the US economy has surprised many, and the soft landing has benefited cyclicals. Rates remain stubbornly high, along with inflation. While the path to 2% inflation and how long it will take to get there remains one of the most important macro questions out there, interest rates remain near cycle peaks. Higher-for-longer should hurt cyclicals the longer rates remain restrictive.
2. Business Cycle Phases - The business cycle remains healthy and in expansion territory. Margins have remained historically healthy, and based on the latest earnings quarter, both sales and earnings growth remain strong. While the business cycle remains healthy from a 10,000 ft perspective, when digging into the specific sectors, we do see an interesting trend developing. The chart below aggregates total net income from continuing operations across for both cyclical yield and the rate sensitives. Cyclical earnings peaked back in 2022 and have been trending lower. Conversely, rate-sensitive net income bottomed in late 2022 and has begun to recover. Relative earnings growth favours the rate sensitives, which has been aiding the lower beta tilt seen in the market of late.

3. Market Sentiment - Risk appetite in the market remains strong, and investor sentiment remains decidedly bullish. The AI story continues to drive strong relative performance as investors remain guided by the urge not to miss out. While the relative performance this year has certainly benefited cyclicals over the past few months, rate-sensitive stocks have actually begun to do quite well. In May, the Utilities sector was the second-best performing sector in both Canada and the US Staples, too, have been solid relative winners. This could, in fact, be an early sign that investors are increasingly looking to diversify into lower beta names.
4. Fundamentals - Valuations can sometimes take the back seat to investment decisions, especially in a new ear investment environment. Investors would be wise to remember that excesses are never permanent, and past trends don’t have anything to do with future performance. From a traditional valuation standpoint, certain cyclical sectors (Energy) still appear somewhat cheap, as the average P/E across our cyclical industries is still just 15.3x, compared with 19x for the Canadian rate sensitives. For cyclical companies, a low P/E doesn’t necessarily mean a stock is cheap because the P/E ratio can be misleading. During boom times, earnings tend to be high, which can make the P/E ratio appear low. During downturns, earnings drop significantly, and the P/E goes parabolic or even nonexistent. Low P/Es across the cyclical space can reflect the peak of the business cycle. Rate sensitives might have a higher P/E, but they are also, on average, trading at a sizeable discount to their average valuations. Telecom and Utility sectors, in particular, are trading at nearly a 20% discount. Undervalued assets offer a margin of safety, reducing potential downside risk.
Bond yields have had an extended trend higher, and dividend strategies, especially those tilted more so towards interest rate-sensitive sectors, have had a difficult go. Being active managers, we’ve had a definite tilt towards cyclical yield, which has helped. Looking ahead, the future path of the rates trajectory certainly isn’t as clear as it was back in 2020/2021. The growing consensus believes rates have peaked, and with growth rates slowing, cyclical yield may not be the best place to be. The relative cheapness and recent earnings growth trends in favour of rate-sensitives also make this space more attractive. The recent rise in global interest rates approaching cycle highs, alongside a US market trading at a high valuation (21.4x forward earnings), presents a potential challenge for the stock market. However, this environment can also be viewed as an opportunity. By strategically adding investments with higher interest rate sensitivity and inherent defensiveness, investors can position their portfolios to benefit from falling rates in the same way as increasing duration in a fixed-income portfolio.

Market Cycle

After many months of steady improvement, we have seen the Market Cycle signals take a small step lower over the month of May. Market Cycle indicators are comprised of over 40 indicators that have, in the past, proven to be a good forward-looking signal for the broader economy.

Among the 19 US economic signals, two slipped from bullish to bearish. The Citigroup Economic Surprise index turned negative, as the data has generally been coming in softer lately. And NAHB housing activity soured. Two signals also flipped to bearish among the global economic signals. Baltic Freight rates declined, but you could put a positive spin – this is just cooling off concerns about Red Sea travel. DRAM prices fell as well. Rates and Fundamental signals remained stable.

On a sobering note, you can see a score for ‘Better/Worse’ in each category, with either ‘+’ or ‘-’ next to each signal. This measures the direction in which the data has travelled over the past month. Is it getting better or worse? Compared with last month, rates got worse from 3/0 to 0/2. The US economy was stable from 7/12 to 6/13, more worsening than improving but roughly the same as last month. The global economy stayed at 3/5. Fundamentals, following the earnings season, have dropped from 10/2 to 4/8, which is not good as this is a material swing in momentum.
Overall, it just highlights some deterioration in direction, but that does change often.
The only change we have made from a strategic allocation perspective is increasing exposure to emerging markets. After being underweight emerging markets for many years, we are now back to neutral. This was predicated on an elevated valuation spread between emerging markets and developed markets. Plus, improving global trade and relative earnings growth.
Outside this change we remain moderately underweight equities, holding a bit more bonds and cash. Among equities, we are a bit underweight in US equities and overweight internationals. Bonds have us carrying a bit higher duration.

Final thoughts

Maybe the summer months will see quiet markets, or maybe this lack of volatility across many asset classes is the calm before a storm. One thing is certain: gains have been good lately, and becoming or remaining defensive feels appropriate. The back half of this year certainly has more challenges than the first half. We are going to see a big US election. We will also likely see if this uptick in global growth is a bounce or the start of something sustainable. And maybe there will be a broader central bank pivot.
The only certainty is that this calm won’t last.

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Greg Taylor and Derek Benedet Purpose Investments Inc.

The Calm Before the Calm

website@sitemodify.com (Website Editor) — Tue, 28 May 2024 13:43:00 GMT

Should it be any surprise how calm markets have become? Global equities are up 9.2% year to date. Apart from a 2% decline in January and a 5% drop in April, the trend has been steadily up to the right on the chart. We can easily slap a financial narrative on this, such as improving economic growth globally, a decent Q1 earnings season, or maybe it's just the AI frenzy. More than a third of the advances in global equities are attributed to Nvidia, Microsoft, Amazon, Meta, and Alphabet. Whatever the cause, equity volatility has been very calm so far in 2024. But it is more than this, as it isn’t just equities.
The volatility in the bond market has gone super low (2nd panel in chart). The MOVE index measures volatility in U.S. Treasury Bonds [actually at-the-money options on interest rate swaps, but let’s not go down that rabbit hole]. Even though bond yields moved higher this year, the 10-year started at 4%, gradually up to 4.75%, then back down to 4.5%; these moves pale in comparison to the last couple of years. In case you forgot, the same bond in 2022 went from 1.5% to 4.0% and in 2023, yields oscillated between 3.5 to 5.0%. Looking beyond Treasuries, credit spreads are back down to or close to historical lows. Investment Grade spreads in the U.S. are 50bps. Lows in past mini-credit cycles have been 40-60bps.

Then, finally, there are currencies. Again, volatility has been sitting near or at lows for the past number of years. After the rollercoaster currency rides in 2020-2022, a calmness has returned. The U.S. trade-weighted dollar index has been sitting in a channel between 100 and 107 for a year and a half. The Canadian dollar, too – 72-75 cents has been the range since the end of 2022.
Yawn.
Or consider this: the S&P 500 has not had a 2% down day in 316 trading sessions dating back to February 2023. Third longest streak this millennium. Given this, it is not too surprising the VIX, which measures the implied volatility of S&P index options, is sitting down at 12 ½. The VIX uses near-term options for its measurement of volatility; even more surprisingly, the six-month VIX is dormant. Over the next six months, we will have endured a U.S. election (if it ends as scheduled) and perhaps a pivot from the Fed on interest rates. Even 5-6% out-of-the-money puts for December are only pricing in 16% volatility.
Insurance is cheap.
There is likely some downward pressure on option volatilities due to the proliferation of option strategies, especially those that write options. But given volatility has become so calm across so many markets and asset classes, we can’t really blame those yield-hungry investors.
The question becomes, will this calmness persist? Maybe. There is no denying that, on average, markets tend to be relatively calm during the summer months (June through the end of August). All the traders/investors off in the Hamptons, Muskoka or wherever the Londoners go could make volumes lower and have fewer folks making big changes to their portfolios. Of course, averages can be very misleading and much variation can occur. With data back to 1970, the summer months are roughly flat on average for the S&P and the TSX. A seasonal chart for the VIX also shows this calmness as volatility falls in the summer months before moving materially higher in the often challenging September/October period.

Not surprising that markets are gently trending higher with limited volatility; investors have become rather calm as well. In the latest survey, 47% of folks are bullish (AAII survey). Meanwhile, 26% are bearish, and 27% are neutral or undecided. We would highlight that from a sentiment perspective, when this many folks are bullish, future returns tend to be a bit on the lower side. But we will also point out that sentiment is much more reliable at market bottoms than trying to call market tops.

Final Thoughts

Markets are certainly eerily calm across many different geographies and asset classes, like a Muskoka lake early in the morning. Maybe it is the calm before the storm or perhaps just the calm before the summer calm. There are certainly positives from an improving trend in the global economy; earnings continue to come in healthy, and inflation is cooling, albeit in a straight line. If the market can continue to ignore the campaign rhetoric leading to the U.S. election, that would be great and unprecedented. At some point, the banter will start impacting markets, but likely not in a positive way. The consumer is getting tired and weighed down by slowing labour gains and inflation, which continues to eat away at previously accumulated savings.
The only thing we are pretty sure of is that volatility will rise in the second half.
Let’s just hope for a calm summer.

— Craig Basinger is the Chief Market Strategist at Purpose Investments

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.

More Bad News S'Il Vous Plaît

website@sitemodify.com (Website Editor) — Tue, 21 May 2024 18:06:00 GMT

I think we might be in that very unique market mood when bad news is good news. The equity market weakness in April can probably be attributed to bond yields moving higher, so any economic data on the weaker growth side is welcome news at the moment. The S&P started to recover on May 3rd, rising 1.3% when the ever-important non-farm payroll labour report came in softer than expected, helping 10-year yields fall back down to 4.5%. Then, over the past few weeks, we have seen generally weaker economic data for the ever-important U.S. economy; bond yields have continued to come down, and equity prices have moved up.
Of course, all eyes were on the U.S. inflation print for April, which was marginally softer than expected (soft CPI is truly good news), helping bond yields fall and pushing the S&P 500 to a new all-time high. But really, 0.3% vs. expectations of 0.4% is not huge, especially given that the core reading was in line at 0.3%. This still has the annualized 3-month change running a hot 4.5%. To be fair, there was some good news beneath the surface on the CPI print. But on that day, helping, and less talked about, was a really weak Empire manufacturing survey and weak retail sales.

So, weak economic data helps bond yields come down, softens inflation fears, and opens the door a little more for central bank rate cut optimism, which allows the stock market to trade at a higher valuation multiple. Stocks up, bonds up—perfect! The problem is that this will work until bond yields have cooled enough, and then the market may start to fret about a lack of economic growth.
The U.S. economy is about 25% of the global economy, and the U.S. consumer is about 70% of the U.S. economy. So, with some rough math, the U.S. consumer is about 18% of the global economy, which is kind of important. We are well versed in never betting against the U.S. consumer, but what is not being talked about much is some clear signs of erosion. No denying past rate hikes are starting to take a toll. As is inflation, that has been making everything cost much more than before. For the past few quarters, the consumer has been complaining about the higher prices of everything from vacations to goods but still paying the tab. This is mainly because of some positives. Good gains in labour over the past few years, wage gains too, and don’t forget all those accumulated savings that built up during the pandemic period when mobility was restricted.
Unfortunately, those positives appear to be fading while the consumer headwinds remain. Wage growth has slowed, as have job gains. But this erosion may be more apparent in behaviours. Walmart just posted stronger numbers, helped by higher-end consumer shopping at the big box. When the wealthy start showing up at Walmart, this could be evidence that higher prices are causing consumers to start downshifting their spending habits.
It is not just trips to Walmart; instead of higher-end retailers, look at the restaurants. Dining-out options vary greatly from those Michelin-star restaurants all the way to picking up a happy meal at McDonald’s. It is hard to get data on Michelin-star restaurants. Still, it continues to be challenging to get reservations, so high-end consumers still appear confident. First, popping into Walmart, then off to Le Bernardin. However, there is a quality of restaurants just above QSR (Quick Service Restaurants) that may be showing signs of softening spending choices. We created a basket of seven publicly traded sit-down restaurants that are a notch above McDonalds, Chipotle or Wild Wings. The list was created by asking one of our team members where his family eats when travelling in the U.S.

We cut off the peak and trough caused by abrupt changes brought on by the pandemic, but you can clearly see that same-store sales at these restaurants have been slowing and starting to turn negative. Even more impactful is that same-store sales are a nominal measurement, which means if volumes remained steady, then this would be higher, given that the ‘food away from home’ component of CPI is up 4.1% over the past year. Adjusted for inflation, the consumer appears to be slowing their spending habits in this very discretionary category.

Then, there is how people are paying for things. During the pandemic, consumers were spending less and still earning well. This helped them pay down debt, including credit cards. But look at the trajectory or slope of credit card debt accumulation during the past few years, even as rates rose. Maybe we could argue that society has gone more cashless, leading us to use cards more. Fair point. So then look at the delinquency rates, ticking over 10%. Of that big pile of credit card debt, over 10% is beyond 90 days delinquent. A level not seen since early in the financial crisis of ‘08/’09.

Trends are very similar for the Canadian consumer as well. Job gains slowing, wage growth slowing, spending slowing, we are not that different.

Final Thoughts

Fortunately, all this is good news today. Because this is how it is supposed to work. A central bank raises rates to slow inflation, causing slowing economic activity. Now, this mechanism, which operates on slow variable lags, has been further delayed due to aggressive fiscal spending. But it does appear to be starting to show up, at least in some of the more discretionary categories or behaviours. I'm not betting against the consumer yet, but they are certainly on a fragile-looking footing.

— Craig Basinger is the Chief Market Strategist at Purpose Investments

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.

Is It Time for Emerging Markets

website@sitemodify.com (Website Editor) — Mon, 13 May 2024 18:06:00 GMT

The normal narrative for encouraging investors to look at emerging markets typically goes like this: The valuations are cheap, the demographics/rising incomes are supportive of growth, and they offer diversification. Perhaps this is more the marketing narrative. Kind of how, like for infrastructure strategies, they always talk about how many bridges need repairing. We are not refuting any of the above reasons, as they have been rather perennial for many, many years. And yet, for those who know us, we have been rather negative or at least cool on emerging markets for a long time. How long? Well, this negative view persisted for well over a decade. This is us giving ourselves a pat on the back since Emerging Markets (EM) have done roughly nothing for the past 12 years as Developed Markets (DM) have charged higher (chart).

So why are we turning more positive now after so long? First off, it is not all rosy, as there are some big headwinds as well as tailwinds. If everything were positive, EM would have already ripped higher. Investing is probabilities, with an eye on risk to both the upside and downside. Today, we feel there is a good tilt in favour of EM. But first, we will talk about the negatives.
Trade restrictions – For EM nations, exports make up a larger portion of their economies than developed markets, so any increase in tariffs or trade restrictions is negative. Given that China comprises a bit over 20% of the EM universe, the escalation of the China/US trade conflict is a clear risk. When the U.S. raised China tariffs from 3% to 12% during Trump’s presidency, trade gradually adjusted.
Exports out of China bound for the U.S. fell from 21% to 14%. Other countries, such as Mexico, experienced increases in their economy.
We are not going to try to guess who wins the election or to what degree campaign boasting actually affects policy. However, the escalation of trade restrictions, or Trade War 2.0, if you prefer, is a risk for China and other EM nations.
Polarization – T he world has become marginally more polarized over the past years. This has led to increased geopolitical conflicts, or geopolitics have led to increased polarization, which is a bit of a chicken-and-egg question. Regardless, this trend is away from globalization, which is not great for emerging markets.
China – When talking EM, you can’t ignore China. Now, China used to have about a 40% weighting in EM, but this has fallen to around 22% as their market has suffered and other EM countries, including Mexico, Brazil and India, have risen. China is very cheap for some clear reasons, including the trade war risk, the fact their index has a strong technology weighting, and, of course, the ongoing property crisis.
As we said, if everything were positive, there wouldn’t be much of an opportunity. The real question is whether these negatives are bigger than the positives, given the current entry point available. We think the positives are great, and the low entry point offers enough of a margin of safety. Here is the other side, and we are skipping over the standard demographics and diversification arguments.
Valuations – Yes, EM is almost always cheaper than DM, mainly because of greater earnings variability. A dollar of more cyclical earnings is simply worth less. Normally, this would not be a reason, in our opinion. However, the price-to-earnings spread between EM and DM is over 6 points, which is historically very high. Developed markets globally are trading at 18x while EM is around 12x. That kind of spread does have us talking about valuations as a reason to be more positive EM, or at the very least, less fearful of the negatives.

Economic momentum – Everyone knows the U.S. economy has been the more resilient over the past year or two, while other economies have suffered. Today, we are seeing a broadening of economic improvement, including EM. Broader growth and less risk of global recession is good news for both DM and EM, just more so for EM. Notably, global trade is improving. While it is still being influenced by pandemic-induced behavioural changes, rising trade and higher manufacturing activity favour EM. The chart below is global trade, and it is clearly turning up (black line). It hasn’t reached the key 4% growth pace but is moving in the right direction. When global trade is higher, EM tends to outperform DM.

We would add to this central bank activity. Broadly speaking, EM nations raised rates before DM in the past rate hiking cycle. And they have started to cut rates sooner. Again, a positive impact on EM.
Earnings Growth – The relative performance of EM vs DM tracks very well with the relative earnings growth in EM vs DM. Whichever market grouping has better growth normally performs better. In fact, for much of the past decade, during which EM underperformed DM, earnings growth in EM was below that of DM. With forward earnings growth rising back close to parity, this is good news for EM vs DM that we do not believe has been reflected in the relative performance between the two.

While China used to be a much, much larger weight in EM, it is still the biggest single country weight, at just under 25%. The chart above outlines the current weights in one of the larger EM ETFs available. So, let’s talk China a little. The trade war risk is certainly real, with some of the risk mitigated by their gradual migration away from trade bound for the U.S. But the big risk is their real estate crisis. This has really been going on for about three years, and part of us wants to believe that after such a period, much of the bad news has become widely known. There is too much inventory, developers are going bankrupt, soft sales, etc. Often, the cure for a crisis is the passage of time. We’re not saying that ends a crisis, but markets will move on long before it's all over.
So, is it over from a broader market perspective? Economic data from China is always a bit questionable. When Evergrande first surfaced as posterchild for this crisis (like Lehman Brothers for the GFC), we started tracking developers’ share prices. Creating an equal-weighted index of real estate developers listed in China and Hong Kong. Our view was long before the data started to improve, this group of companies would start to recover. Call it our good news canary for China’s real estate crisis. We ignored the move higher in late 2022 as it was driven by some government intervention. And there have been many mini false dawns. Maybe the current uptick will fail again, yet we just don’t think there are many more shoes to drop that haven’t dropped in the past three years.

Final Thoughts

Add all this up, and emerging markets aren’t filling us with jubilation. For the first time in many years, though, we are less fearful and believe the risk/return balance is tilted more toward return.
— Craig Basinger is the Chief Market Strategist at Purpose Investments

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Greg Taylor and Derek Benedet Purpose Investments Inc.

Lots of Bulls & Bears

website@sitemodify.com (Website Editor) — Mon, 06 May 2024 17:53:00 GMT

Take your pick. There is no shortage of both good and bad news floating about the financial markets. To be fair, this is always the case. The hard part is understanding which side is stronger today and which side will be stronger tomorrow. With markets up low to mid-single digits following a very strong Q4 finish to 2023, most would agree the optimists are carrying the day at the moment.
It is not just rose-coloured glasses; there is good news out there. Economic growth signs or momentum appear to be improving year-to-date. Dial back a few quarters, and the U.S. economy remained resilient while other economies softened or were rather lacklustre, including Canada, Europe, Japan, and China, to highlight some of the biggies. Today, while Canada is struggling, momentum in the U.S. has moved even higher, and there are signs of improvement in most jurisdictions.

Consensus estimates for U.S. economic growth in 2024 started rising a year ago and accelerated this year. Now when the largest economy in the world is accelerating, that certainly alleviates many of those recession fears (ourselves included; we’re still fearful but less so). Consumer confidence has been rising in the U.S. and elsewhere. Purchasing Manager surveys that track manufacturing activity have been firming up and becoming expansionary in many countries.
This good news has not been lost on the market. The S&P 500 has just posted back-to-back +10% quarters. The chart below is a bit selective on the time period, but a 5-month return of over 20% has rarely been seen outside of market recoveries from recessions. The market has clearly responded to the better news in fine fashion.

This move higher in the markets, which extends beyond the S&P to Japan, Europe and Canada, has pushed valuations higher. As we have harped on many times before, this market advance has not enjoyed any follow-through from earnings expectations. S&P 500 earnings estimates for 2024 have risen by a mere 1% so far this year and 2% for 2025 estimates. That’s not terrible, but given the market rally, it’s not great either. Global earnings outside the U.S. are worse, seeing 2024 and 2025 consensus estimates fall by 4%.

Higher markets with no follow-through on earnings does make for a weak foundation. Perhaps the uptick in economic data will make its way to corporate bottom lines… maybe. But it would really have to get going soon to start catching up.

A very different cycle

Every market or economic cycle is different, this one even more so for obvious reasons. Trying to ascertain what is really going on or what is most likely to happen next has become even more challenging due to the continued reverberations of the pandemic. Many long-standing relationships have been tested or even negated. Just look at the yield curve, which was all the talk a few years ago and now few pay it much mind. Has that relationship of an inverted 3-month/10-year yield stopped working as a precursor for a recession? We are seeing rising U.S. economic activity as the inversion is now a record at 19 months.

Broken, slow, distorted—take your pick. Only time will tell. Or how about fiscal spending, with the U.S. running its largest deficit outside war/pandemic/recession periods? Unemployment is near record lows. Is this really the time for aggressive fiscal spending/stimulus? Oh, and the monetary policy of raised rates is trying to fight inflation. If you want to lower inflation, fiscal spending levels are clearly counterproductive.

Perhaps one of the longer macro factors that can do much to explain everything for the economy and markets is money. Little eco101. Normally the money supply and the economy expand at roughly the same pace, with minor divergences. The money supply ballooned to combat the impact of the pandemic. There’s no question that that was the correct response. But when you create a bunch of new money much faster than the economy requires, well, weird stuff happens. More money than required results in an increase in savings. Add to this an economy that slows due to shutdowns and people unable to spend on things like travel and fancy restaurants, and well, that savings spike even faster.

As the economy and personal mobility return, all that money flows into an economy. Add lingering shortages, and presto, here comes inflation. Price inflation sucks; everyone complains about it, but have you noticed many people changing their behaviours? That trip to the South of France costs too much… still going, though. That is because there is too much money.

This didn’t just cause price inflation, more money leads to asset price inflation as well. That has helped stocks and real estate rise. But something is nearing inflection. Firstly, the saving rate has been falling fast, probably because price inflation is eating into disposable income and the first behaviour that suffers is savings.

Or on a more macro level, the gap between the amount of money out there and the economy is narrowing. It was that gap that fed inflation, both price and asset price inflation. When that gap closes, well, it sure isn’t good news for prices. And that gap is closing pretty fast.

Then there is what we will call the echo in global trade. As we have pointed out, there is good news on the global trade front; it appears to be improving. Exports from Korea and Taiwan, historically early leaders in changes in the direction of global trade volumes, have been rising. Global manufacturing has been improving. So, the question is whether this is the start of a new healthy trend or is it an echo caused by some of the previous pandemic-induced gyrations?
When the pandemic hit, we all had way too much money and couldn’t spend it on fun travel/eating, so everyone bought stuff. Cars, home renovations for that walk-in wine cellar, then some wine, new TVs, etc. Add logistic and supply chain bottlenecks, and we kind of blew things up with this changed behaviour. As supply gradually caught up with demand, the global economy enjoyed the best of times, factories humming, ships full of stuff on their way to consumers. Evidence of this can be seen in global container volumes dropping in the 1st half of 2020, then increasing well above trend in 2021.

We all know how this story unfolded. Once mobility returned, revenge travel became the rage and people slowed down buying stuff. Cars, TVs, renovations had all finally been done or the latest version purchased so as we pivoted our behaviours and global trade fell back down. Planes and restaurants filled up, and inflation took off. During this period, our team debated whether this drop in trade and manufacturing activity could cause everyone to ring the recession warning bell while it was just another pandemic pivot of behaviour. In hindsight it does look like that was the case.
Now we see trade and activity turning back up, and everyone is convinced that global economic growth is on its way back up. Maybe. Or this move up is just another pandemic reverberation. As revenge travel fades and normal spending returns, it could easily look like growth given trade/manufacturing has fallen so low… the echo.

Dividend divergence

Higher yields in the bond market have weighed very heavily on dividend-paying equities; after all, bonds are a clear competing investment for investors looking for income, and those bonds pay more now than before. This weakness in the dividend space has created a potential opportunity given valuations and rather juicy dividend yields (before or after tax). However, higher yields, inflation, and growth gyrations have increased performance dispersion in the dividend space. We believe a more active or rotational approach to dividend investing has become more optimal. But first a bedtime story.
You hear the word Goldilocks a lot at present. It’s the phrase used to explain the perfect environment, when markets just go up with no solid reason, except for everything is “not too hot, not too cold, but just right.” We all remember the fairy tale. A girl wanders through the forest and into a bear house. She’s rather picky but tries all the food, the chairs and the beds looking for one that is ‘just right.’ The tale has been around for at least two centuries. The traditional story concludes with Goldilocks running away from the bears' house after they discover her sleeping in Baby Bear's bed. Goldilocks was a fussy home invader who would very likely meet her demise in the shadow of the bears' wrath. In the true-to-life version, her actions lead her into a very serious situation. In every perfect Goldilocks environment, the situation can change in an instant when the bears return home and discover that someone has eaten their dinner.
In 2024, inflation is the big bad bear coming back home. Its steady easing has halted, even reversed somewhat, and this has reduced the odds and timing of global central banks cutting rates. Bond yields have risen considerably, approaching their 2023 highs. The current level of Canadian and U.S. bond yields is not crippling high but high enough for investors to reevaluate their options and expectations. The buy-anything period is likely over, at least for now, and markets are entering a more volatile period; perhaps by circumstance, the timing also aligns with weaker seasonality. While the round trip of rate expectations has only recently impacted broader equity markets, the dividend space has been feeling the impact of higher bond yields for some time. Higher for longer, brings with it a unique set of risks to the dividend space. This has made the dividend space more challenging, and we believe increases the need for a more active management approach.

The dividend factor (aka dividend stocks) has lagged other factors all year. While unfortunate, this has also created a bit of an opportunity. There are now many companies carrying dividend yields of 6% or 7%, that are pretty safe dividends. The challenge has become not just whether to add to dividend strategies, but how. Divergence in performance within the dividend space has increased, which means it's no longer best just to add anything with a yield to a portfolio. Not all yields are created equal, and the winning or losing factors keep changing.
We believe the more flexible approach, or a more active management approach, can better adapt to these changing market conditions. Especially compared to a more passive or index-hugging strategy.
Index misallocations – Let’s face it: The TSX is concentrated on Financials and Energy. Passive funds screening on yield amplifies the concentration risks. One of the more popular dividend ETFs has 56% of the fund allocated to Financials. These misallocations expose investors to higher sector-specific risks. Active management done right improves diversification and can reduce this concentration risk.
Dispersion – Active managers are particularly challenged in periods when dispersion is low and market leadership comes from extremely large stocks. When all the dividend stocks move together, who cares how you get exposure? But when the performance dispersion is high among dividend stocks, it matters how you are exposed. Dispersion across the dividend space is quite high and variability among dividend strategies in Canada is also on the rise. In the chart below, we look back at the Dow Jones Canada Select Dividend universe and plot the monthly return difference between the 25th and 75th percentile. Outside of the crisis period in 2020, the average dispersion this year is near the highs.

Volatile periods – Higher rates tend to increase volatility. Passive indexing tends to struggle when markets get choppy, whereas active managers can be nimble. Raise cash or actively increase company exposure to more defensive sectors. This proactive approach allows managers to manage risks, especially when it’s that most rate-sensitive sectors that are under pressure.
Unusual macro forces – Higher rates create market tension, especially for high-duration assets and highly leveraged companies. Active managers can identify and avoid companies that may have a high dividend yield but are vulnerable to rising borrowing costs. When rates are high, market inefficiencies tend to arise.
Canadians love dividends, but most active funds aren’t very active.
There are dozens of dividend and income-focused funds and ETFs in Canada. Within the Morningstar Canadian Dividend and Income Equity category, there is no shortage of options. Among them are the bankowned behemoths, with the top four funds managing over $50 billion dollars. When dissecting the universe an important metric to look at is the active share, which establishes the percentage of holdings that differ from the benchmark index. A portfolio with an active share between 20% and 60% is considered a closet indexer. Among these behemoths, the active share is as low as 35%, and the highest is just 53%. The category average active share for funds over $200 million is just 50%. In effect, the category is rife with closet indexers, as seen in the chart below. Most ‘active’ managers tend to look very much like the index. Liquidity also plays a part. The bigger the fund, the more difficult it is to look very different than the index, but that’s not the only reason. Career risk for portfolio managers is also a consideration. Our view is that it’s impossible to beat the market if you look like the market. Managers must strive to earn the fee they charge. For example, the Purpose Core Equity Income fund has an active share of 72%, the third highest in the category, along with a strong performance record.

Digging deeper, in the chart below we have the sector allocations across the category. The vertical bars represent the range from maximum to minimum allocation for the sector, with the category average as well as the sector weight of the Purpose Core Equity Income Fund. By and large, most sectors have a somewhat limited exposure range, with the real major differences coming largely from the Energy and Financial sectors. These two sectors are where active managers can make a meaningful distinction from both the index as well as peers.

Building a sustainable and high-performing dividend portfolio in Canada requires a keen eye and strategic selection. Active management empowers managers to go beyond the limitations of passive indexing, seeking out hidden gems, prioritizing quality over just high yields, and adapting to changing market conditions. Canadian dividend-paying companies make up the core of many advisor models and investor portfolios. Passive strategies play a key role in building robust portfolios to help reduce costs and provide broad market beta, but active management best suits the dividend-focused core, especially in present market conditions.

Final thoughts

There is lots of good and bad news these days. Challenges are this pesky inflation, stubborn earnings growth, valuations, and still lingering impacts of pandemic-induced behavioural changes. On the good side, there are some pockets of really attractive valuations, such as in the dividend space, an economy that appears to be gaining a bit of momentum that could help address the lack of earnings revisions. While our fear of a recession has diminished over the past few months, the risk of a price correction remains elevated. It has been a good start to the year, and very likely many twists and turns remain.

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Greg Taylor and Derek Benedet Purpose Investments Inc.

Earnings Optimism

website@sitemodify.com (Website Editor) — Mon, 29 Apr 2024 16:31:00 GMT

There are three things you should rarely ever bet against: the Leaf’s opposing team in the playoffs, the American consumer’s ability to spend, and corporate profits. As we are now about halfway through U.S. earnings season, once again, positive surprises remain the norm; 81% have beaten. It's a bit better than the 20-year average of 75%. The fact is that companies are good at managing analysts’ expectations. At least enough to beat them when the numbers hit the tape. The size of the positive surprises have been encouraging as well, at just under 10%. The highest surprise magnitude in some time.
One of our reservations on the sustainability of this market rally over the past couple of quarters has been the flat earnings revisions. In other words, global markets are up over 20% but earnings estimates have remained flat or tilted down slightly. More often than not, markets trend in the same direction as earnings revisions. Earnings get revised up when companies raise guidance and/or analysts become more encouraged about growth prospects. That is a good thing for markets. Obviously, downward revisions are bad. Yet estimates have remained very flat as markets marched higher, a challenging combination.

Of course, the reason earnings matter so much is they are everything in the longer term. Sure, the market can move up a lot or down a lot as the optimism or pessimism about the future waxes and wanes. But all this tends to average out, leaving earnings growth as the real driver of market performance. We have used the chart below a few times over the years, but it really does highlight where market returns come from. In any single year, the red bar dominates as fear/greed causes the market multiple to rise or fall. Yet once you look at 10 or 20-year periods, the red bar disappears as it is all about earnings growth (yellow bar), plus some dividends.

Given the importance of earnings, a good earnings season is a welcome boost to markets. The question is whether this good season will translate into rising revisions for forward estimates. So far, it has not. Global earnings from the earlier chart show 2024 still trending ever so slightly lower and 2025 more stable to ever so slightly higher. Looking at just the U.S. market, it is rather similar. 2024 earnings are forecast at $243, the same number as of January 1st. 2025 looks a bit better, with consensus estimates of $270 rising to $275 so far this year.

Digging down to the sector level, it seems just a couple of sectors, including Energy, Info Tech, and Communication Services, are lifting the overall market earnings. Energy makes sense as commodity prices have been trending higher, tech too, given the excitement spending around AI. Communication Services is an odd one on the surface but is mainly Alphabet. Traditional telcos are seeing estimates fall.

So where do earnings go next? There are some decent headwinds for U.S. earnings. One is a higher U.S. dollar, running a bit higher than last year. Given the amount of earnings that come from overseas, once translated back to USD, a strong dollar is a negative. The bigger drag may be interest expense. Last quarter, S&P 500 companies paid $68 billion in interest expenses, which is up from $59 billion a year ago. Variable interest obligations have already adjusted to the higher rate world, but the fixed-term obligations will only reset once they mature. In other words, even if yields/rates start to come down later this year, interest expenses will likely keep rising for many quarters to come.
Wages and other corporate input costs are also a negative for future earnings. On a positive note, wage pressures have been trending lower. The Atlanta Fed Wage Growth Tracker peaked at 6% in 2022 but has been steadily falling for over a year down to 4.7%. That is not bad, considering that historical norms were in the 3- 4% range.
Despite these headwinds, there are some very positive factors as well. U.S. earnings tend to be highly correlated to manufacturing activity. S&P 500 year-over-year earnings growth tracks PMI (Purchasing Managers survey) with a six -month lead. Which means the uptick in PMI data we are seeing today bodes well for earnings growth in the coming months.

The economic data, globally, has been improving. This should result in further earnings growth and upward earnings revisions. The Citigroup economic surprise index for the world has been positive for most of 2024 so far. This means that economic data is coming in better than consensus estimates. And if you ask copper, with its honorary PhD in economics, maybe things are even heating up more so. Given how many areas of economic activity consume copper, its price moves are often a precursor for the move in the economy. Copper prices have recently risen through $4/lb, a level not seen since 2021/early 2022 as the economy emerged from the pandemic.
The final good news may be inflation. Inflation sucks; it is a tax on your future spending power or the value of your wealth. But for earnings, inflation is good. It means companies are able to raise prices, and when Producer Prices (PPI) are rising slower than Consumer Prices (CPI), that is an earnings-healthy combination.

Final Thoughts

Earnings probably have more going for them than against them these days, which is a good news story. Hard to say if it will be enough to maintain the gains of the past few quarters, but it certainly would be helpful. The U.S. earnings season is halfway through the Q1 season and it has been good. Hopefully this trend persists. And, hopefully, the Leaf’s playoff trend doesn’t.

— Craig Basinger is the Chief Market Strategist at Purpose Investments

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.

Energy Stars Align

website@sitemodify.com (Website Editor) — Mon, 22 Apr 2024 17:11:00 GMT

The oil market has been interesting lately and, to the surprise of many, has been the biggest silent outperformer this year. There is no shortage of geopolitical events to choose from that’s leading to a higher risk premium in oil with Brent breaking $90, whether it’s the Houthis missile attacks in the Red Sea leading to a massive re-route of trade, Ukraine’s drone strikes on Russian refineries, and the latest escalation between Israel and Iran leading to some news outlets using WWIII as click bait-y headlines. Given the run-up in oil prices, Canadian oil equities have clearly benefitted from the much higher torque. But there is a layer of even better news: The Transmountain Expansion (TMX) continues to look to be in operation by May, which would lead to much better pricing on the Western Canadian Select (WCS). With the current setup for the oil markets, some key questions that we often get from investors are: How sustainable is the rally in Canadian energy names?
To determine if the oil equities are overstretched, we can look at the debt-adjusted cash flow (DACF) multiples of the major integrated oil names and see how the valuation has shifted in light of the recent oil move. From Exhibit 1, the DACF multiples for the Canadian integrated have been fairly range-bound over the last year, also in line with WTI, which has been in the $70 - $85 range. As a starting point, we can infer that the valuations of the companies have been commensurate with the movements in the underlying oil price deck and in line with where the equities should trade in the cycle historically over the last couple of years. Typically, in the commodities cycle, higher prices are usually coupled with lower multiples as market participants will usually price in lower normalized prices and vice versa, so a cause of concern would be if valuation starts trending towards the 6.5x – 7.0x+ area if oil prices continue to stay in the upper bounds of the $70 - $90 range or higher.

To gauge the broader valuation in the Canadian energy space further, we looked at the valuation of larger-cap integrated oils versus the intermediates and juniors. Interestingly, the valuation gap between the intermediate producers versus the large caps has widened since the 2021 lows. The valuation gap for junior producers is even more pronounced, with multiples virtually unchanged over the last few years, and the valuation spread to larger caps is the widest it has been in 25 years, excluding the COVID-19 years, as shown in Exhibit 2. We speculate the main reason for this valuation gap is due to many institutional investors divesting their oil & gas investments during COVID-19 in chasing clean energy/ESG names, so oil & gas specialists either were repurposed to other sectors or left the industry altogether.
Fast forward to 2022, when the energy crisis was already happening even before the Russian invasion of Ukraine, and now we’re seeing a rush from investors to get back into the space as it becomes harder to justify to your constituents why you’re underweight energy. Given the need to get back into the space quickly, we can see the path of least resistance from many funds to simply buy into more liquid, larger cap names to capture the beta. As the saying goes, no one gets fired for buying Microsoft. The same is probably now true for Canadian Natural Resources or Tourmaline in the energy space. The key takeaway is while we think larger cap oil equities will likely be steady as she goes, given the numerous tailwinds in macro, we think investors will get paid with asymmetric risk-reward if they do the work on some of the intermediate and junior names in the space.

Some have questioned whether the valuation gap between Canadian E&Ps and US E&Ps will tighten over time as we’ve seen a structural discount since pre-COVID. We certainly think there is a case to be made here given the impending commercial operation of the Transmountain Expansion pipeline, which will significantly increase the egress of Canadian oil, a pain point for many years that’s self-inflicted by Canadian politics. Improving egress means better pricing of WCS on the world stage, and lower volatility as a function of WTI price means investors will underwrite higher valuation multiples. Canada’s oil reserves, on a proven and probable basis, span decades. Sustaining capital expenditure to maintain an oil sands project is significantly lower than U.S. shale, where you’re on a constant treadmill to find new acreage and drill high-decline wells. Despite all this, we don’t think Canadian E&Ps should trade at parity to U.S. E&Ps. While TMX is certainly a positive, we take stock in the fact that the pipeline will likely be full by 2027 and we end up having to ship the marginal barrels via rail once again. We will certainly see a few optimization/compression-type projects along the way that improve capacity incrementally, but only time will tell whether we will get another huge step function in Canadian egress in the coming years. TMX project was first submitted to the regulators in 2013, so it’s been a long time coming, with the latest cost overrun estimate at $30B+, or ~$800 per capita.

Final Thoughts

The bottom line for those looking at the Canadian energy space is to invest for the right reasons, and those are 1) step function increase in production, 2) lower volatility from better-realized pricing of WCS, 3) attractive (but not firesale) valuations for steady returns, and 4) outsized opportunities in the intermediates and juniors. Betting on the direction of oil, in our view, is not amongst the top reasons to invest in Canadian energy names, and we would rather focus on a sustainable approach where we pick producers that can generate outsized returns on a full-cycle basis at reasonable valuations.

— Jeremy Lin, CFA is a Portfolio Manager at Purpose Investments

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.

Your Money & Your Heirs: What’s Your Plan for Wealth Longevity?

website@sitemodify.com (Website Editor) — Wed, 17 Apr 2024 16:28:00 GMT

As part of your wealth planning, have you considered your wealth’s longevity? Many of us have heard of the “shirtsleeves curse”: Family wealth is often built up and lost within three generations. You may not be surprised to learn that recipients often make “big” purchases within the first few weeks of receiving their inheritance. This is because many heirs are not focused on the longevity of new-found wealth.
What are high-net-worth families doing to help prevent this loss? There has been an increasing focus on intergenerational wealth planning, with the objective of supporting wealth longevity. This involves getting existing generations to meet about their finances and form shared financial goals and values to help encourage lasting wealth. Here are some steps that can be taken as part of this planning process:
Start with a plan and document it Start by thinking about your vision for your wealth for the generations to come. The plan should set out goals and provisions for how you wish funds to be used, accessed and replenished. For instance, you may wish for family members to invest in themselves to gain the experience needed to create and grow wealth, using funds for higher education or a business start-up or expansion. Others may wish to leave endowments to a charity. Once you determine your goals and provisions, it is important to formally record them as this document will be passed along to future generations.
Communicate your plan Once the plan has been documented, it should be communicated to family members. Often, parents keep their finances and related values to themselves, missing the opportunity to pass along their ideals to children. While specific financial details need not be disclosed, sharing your vision is intended to be a catalyst for meaningful discussions. Some families use this plan to form a family constitution to help future generations carry forward their intentions.
Engage in regular meetings Regular family meetings are intended to help cultivate family values based on your vision for your wealth. If wealth has been carefully built up through the generations, it may involve exploring family history. Or, you may use this time to educate children about finances and managing money or introduce high-level strategies to carry out the intergenerational plan relating to running a family business or a family giving strategy.
Consider protection tools You may determine through family meetings that beneficiaries will need support. Certain tools can support beneficiaries to meet your goals, or protect future wealth in situations in which beneficiaries may not be capable. For example, a trust can put assets under the control of a responsible trustee, with the terms of the trust specifying the conditions, timing and amount of distributions to be made to heirs. Other tools, such as life insurance, can protect and grow assets while also providing access to cash. Setting up a support system of trusted professionals may help to ensure a successful wealth transfer, especially if heirs do not have the skills to manage funds independently.
Monitor the plan’s success By having an ongoing dialogue with family members, you will be able to identify and address any gaps or concerns as they arise. You can also continue to define and refine family roles to ensure that your plan has a greater chance of success.
Here to Provide Support While intergenerational wealth planning may not be for everyone, consider that creating a lasting legacy can be one of the greatest gifts you leave behind. If you need assistance with family discussions or educational tools to support children, please contact your Echelon Advisor.

Estate Planning: Avoid These Estate Administration Errors

website@sitemodify.com (Website Editor) — Wed, 17 Apr 2024 16:28:00 GMT

Have you been appointed as someone’s estate “executor” or “liquidator”?* Or, if you are planning for your own estate, will your executor avoid these errors? Administering an estate can be a time-consuming and complex task, often challenged by what may be an emotionally difficult time. All too often, executors can make mistakes that have the potential to lead to increased tax liabilities, conflict with or between beneficiaries or, worse yet, escalation to potential litigation. Equally concerning, the executor risks personal liability for these mistakes.
Here are five common errors: 1. Overlooking directives in the Will. Estate lawyers say that executors can sometimes ignore parts of the Will, such as forgiving loans that were to be collected, perhaps due to a lack of knowledge or because it is easy or convenient. Others may choose to distribute assets differently than directed within the Will, under the belief that they have a more ‘fair’ idea for this distribution. ¹ However, neither situation is within an executor’s authority, exposing them to potential liability.
2. Failing to communicate. Sometimes executors become so involved in the process that they neglect to communicate. One of the executor’s duties is to respond to reasonable inquiries from beneficiaries. Silence may be misinterpreted as being secretive or suspicious, and this can often prompt estate disputes. Maintaining transparency and ongoing communication can go a long way in helping to prevent conflict.
3. Making distributions too early. If distributions are made too early, such as before taxes or other liabilities are paid, the executor may be held personally responsible. This can often happen when the executor succumbs to pressure from beneficiaries for distributions. However, any outstanding debts of the deceased must be paid before estate assets can be distributed to beneficiaries — and it is the job of the executor to identify these debts. Sometimes the executor overlooks the importance of determining whether there are unknown creditors, which often involves a time-consuming process of creating a public notice. Advertising for creditors before any distributions are made can protect the executor should a creditor make a claim after the estate has been distributed.
4. Trying to keep costs low. Some executors may act too prudently to try and limit estate expenses. However, this may lead to higher eventual costs. For example, if an executor decides to do the tax returns without the help of an accountant, they may miss eligible tax credits or deductions. In the past, advertising for creditors in the newspapers of multiple cities was very costly, so some executors avoided the process, only to be caught by surprise when creditors eventually made claims.
5. Treating estate funds as their own. Given the significance of assets that are often available within an estate, some executors may wrongly use estate funds for their own purposes, such as to make loans to themselves or family members. Others may make more honest mistakes, such as using funds to cover travel costs for family members to attend a funeral. If estate funds are used incorrectly, the executor may be held personally liable. As well, if the executor acts unreasonably or in self-interest, they may not be entitled to charge compensation from the estate. ²
Plan Ahead If you have been appointed to administer an estate, being aware of these potential pitfalls may help as you contemplate the role. Remember also that you can decline the position, but doing so after accepting the role can be difficult and/or costly. As you plan for your own estate, carefully choosing your potential executor is important to prevent these and other mistakes; it may be preferable to seek a professional to act in this role. Click here for a copy of Echelon’s Executor Checklist . If you have any questions, please contact your advisor.
*The names vary by province. For this article, the term “executor” is used to describe the role of the person responsible for carrying out the instructions of the Will. 1. http://estatelawcanada.blogspot.com/2010/07/top-five-mistakes-made-by-executors.html; 2. https://www.canlii.org/en/on/onca/doc/2016/2016onca521/2016onca521.html

Value in the Canadian Dollar

website@sitemodify.com (Website Editor) — Tue, 16 Apr 2024 14:04:00 GMT

The CAD vs USD exchange rate has certainly been on the move over the past few months, to the detriment of the loonie. After rising into year-end to finish 2023 at about 75 ½ cents, the CAD has fallen down close to 72 ½ cents. The CAD is trading near the lower end of its recent range. Ah, remember the days when the loonie was on par with the U.S. dollar? Disney trips felt cheap, cross-border shopping was all the rage, and oil carried an average price of $96/bbl. Huh, with oil moving from the $70s to the high $80s, that sure doesn't match a 72 ½ cent loonie. Are we no longer a petrol currency? Maybe a decade of underinvestment and uncertainty around takeaway infrastructure can change a currency's stripes. Or there are other factors that are bigger than the oil impact on our currency exchange with the almighty dollar.

The weakness in the Canadian dollar is pretty easy to explain. U.S. inflation has ticked higher, as has the American economic data. Meanwhile, in Canada, the opposite trend is apparent. Just look at the Citigroup economic surprise indices for each country. This rolling index measures economic data releases relative to consensus forecasts, weighted based on the importance of each data release. Canada has averaged about -36, while the U.S. has been +40 so far in 2024. Not surprisingly, this has translated into a widening spread of 2-year yields, the tenor of yields most impactful on spot currency exchange rates. U.S. 2-year yields are 4.89% compared to 4.17% in Canada, roughly the widest spread over the past decade. This has also translated into expected central bank rate cuts. In January, the market consensus was pricing in a whopping seven cuts (25bps each) for the U.S. Fed Funds rate, while Canada was forecast to cut five times. Fast forward to today, they are tied at 2 ½ cuts each.

Yet flying in the face of a weaker CAD is commodity prices. While perhaps not as strong as it was historically, the CAD dollar usually does well when commodity prices are rising, and global economic growth is improving. That is clearly not the case of late, and I would even argue this is a material disconnect. The chart below is the CRB commodity index and the price of oil compared to the CAD/USD. Normally, there is a pretty decent correlation between these factors, but not lately.

One important consideration is that the recent currency move in the loonie is more about USD strength than CAD weakness. While the CAD has lost about 5% against the USD so far this year, it has been relatively flat against other major currencies, such as the yen and euro. This really points to USD strength due to higher inflation, tempering of rate cuts, and better relative economic growth data.
But at 72 ½ cents, is there value in the loonie? It is starting to look that way. There is no denying the CAD is undervalued, as highlighted in the purchasing power parity chart below. This doesn’t mean it will fix this undervaluation anytime soon; there are fast drivers of currencies (most of the previously mentioned factors), and then there are slow drivers. Valuation is a slow driver, as are deficits. Sure, everyone runs deficits; that isn’t anything new. But the U.S. has taken deficits to new levels outside a recession/war/pandemic environment. At some point, that will be a negative for the USD relative to more fiscally responsible national currencies. We’re not saying Canada is fiscally responsible, but it is on a relative basis compared to the U.S.

Final Thoughts

Currency exposure is an important component of managing multi-asset portfolios. We remain largely unhedged with our USD exposures, which has been the right call. Generally, we like being unhedged, as the USD can be a powerful diversification tool for Canadian portfolios. However, our conviction on this is waning; the further the CAD depreciates, the better the risk-return trade-off for hedging. We're not there yet, but it is starting to look rather interesting.

— Craig Basinger is the Chief Market Strategist at Purpose Investments

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.

Dividend Depression

website@sitemodify.com (Website Editor) — Mon, 08 Apr 2024 15:03:00 GMT

Dividend investing is supposed to be easy. Find quality companies with long track records of paying or even increasing their dividends , buy some shares, collect your regular tax-advantaged payments over time and watch the share price go higher. Maybe in a strong bull market, dividend companies don’t rise as much, but they have better stability in down markets as most are lower beta than the overall market. Well, over the past year, the TSX has been up about 13% while the Dow Jones Canada Select Dividend Index (a good proxy for dividend investing) has been up 3%. Trailing in an upmarket is fine, but not by that much.
The DJ Select Dividend Index was created in the late 1990s and this is only the fifth time that it has lagged the broader TSX by more than 10% on a trailing one-year basis. Interestingly, most of the previous occurrences coincided with brief periods when a non-bank became the largest weight in the TSX. In the late 90s, it was Nortel; in 2007, it was Encana, Potash, and Blackberry. The 10% threshold was almost reached in 2015 when Valeant became the biggest company in the TSX. And in 2019, it was Shopify.

This makes this recent bout of underperformance of dividends vs the broader TSX rather unique, as the biggest stocks in the TSX remain dividend payers, including Royal Bank and TD Bank. Plus, the banks have been doing ok. It is other dividend payers that have dropped considerably that are dragging down the dividend space. Communication Services (aka Telcos) are down 24% over the past year, and Utilities are down 15%, two areas that are fertile with dividend-paying companies.
This has the valuations in the overall dividend space at roughly 10.5x forward earnings estimates, while the broader TSX is closer to 15x. That is an historically widespread. It was wider in 2020, but that is because the TSX’s earnings almost went to zero during a pandemic; it was not because of a higher index price. While dividends may be cheap vs the TSX, the real crux of the weakness stems more from relative yields. Bond yields moved higher in 2022 and have been maintaining at historically high levels compared to the past decade. This is a clear competitive investment for those looking for yield.

One could even argue that dividend yields need to increase more to remain competitive against yields available in the bond market. This isn’t an apples-to-apples comparison. Bonds benefit from greater stability as a true risk-off asset class. Dividends benefit from a history of growing the dividend rate over time and some rather appealing tax treatment. Plus, the stock price could go higher while bonds mature at 100. However, dividends can also be cut, and companies can even go bankrupt. We will assume the five-year government of Canada bond has a low default risk.

Yet, while the overall DJ Canadian Select Index dividend yield may not look overly enticing compared to bond yields (above chart), digging into specific sectors does show a different picture. The chart below shows the current dividend yield across various dividend-heavy sectors compared to the five-year government of Canada bond yields, plus the 10-year average spread and the nominal dividend yield. The overall dividend space may not be hugely enticing on a relative yield basis, but telcos and pipes sure are, each yielding about 7%.

Final Thoughts

The dividend space has clearly become rather challenging over the past year, given higher bond yields. But it isn’t just bond yields. The increased popularity of other sources of yield has certainly risen over the past number of years, from the structured notes space to covered call strategies that are being applied to just about anything with a live option chain. The search for yield has never had so many choices. So what could turn this tide and help the performance of dividend payers close that gap with the broader market? We’re not sure; maybe a broad market sell-off that cools the more aggressive risk-on behaviour. Maybe central bank rate cuts or lower bond yields. Or maybe just the realization that buying operating companies with decently safe dividends in the 5-7% range and attractive valuations offers a good risk/reward combination and a decent income stream as you wait out this dividend depression.

— Craig Basinger is the Chief Market Strategist at Purpose Investments

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.

Why?

website@sitemodify.com (Website Editor) — Mon, 01 Apr 2024 17:04:00 GMT

Financial literacy is predicated on asking the question, “Why?” Why does this market keep moving higher? Why is inflation fading so slowly? Why are home prices high given low affordability? A stronger financial literacy or understanding likely leads to fewer investing mistakes; nobody likes mistakes. Our weekly publication often attempts to answer questions on various topics, dive into them, explain them, provide some context and share our views on what could happen next. In the past few weeks, we have talked about IPOs, gold, and inflation – hopefully improving our readers’ financial literacy and our own in the process of researching and writing.
Sometimes, the questions being asked are not macro topics such as the economy, or inflation, or upcoming elections, but more focused on portfolio construction and positioning. Why are our portfolios overweight Japanese equities? Why did we add preferred shares? Why is our credit exposure low? Why are we moderately underweight U.S. equities? To answer these questions, we created the WHY Report, which is a monthly chart-heavy report that shares most of our current multi-asset portfolio tilts, explaining our rationale for that tilt. Most are working out well, some not so much. Even with strong financial literacy, mistakes still happen.
With the first quarter of 2024 now in the rearview, today’s report dives into a number of portfolio tilts and sections from our monthly WHY Report . Why are we positioned the way we are? If you would like to receive the WHY Report on a monthly basis, along with any changes to our positioning over time, there is a sign-up at the end of the report. Now, let’s jump into it.

There is very little to complain about in Q1. Bonds were down a smidge, but really only on the longer end of the curve. Add some credit, or shorter duration, and returns were roughly flat or up a bit. Hey, a boring bond market is actually kind of nice, given what we have experienced over the past few years.
All the real excitement was in the equity markets. The S&P 500 is up over 10%, an impressive feat for a mere quarter. But it wasn’t just America; Europe and Japan both rose even more during the quarter. Japan was especially notable, making a new all-time high, something not accomplished since its bubble high of 1989. Just to bring back memories, in ’89, National Lampoon’s Christmas Vacation was the top box office hit… oh, the Griswolds. Canada’s TSX was a bit of a laggard, up less than 10%.
Even more impressive is that the equity market advance is rather broad-based. The S&P 500 still has a concentration problem, with the top ten names representing 33%, levels not experienced outside the dotcom and nifty fifty bubbles. There’s perhaps even higher concentration today. Some of those megacaps certainly helped drive performance in the first quarter of 2024, including Nvidia, Microsoft, Meta and Amazon. Yet, which companies do you think were the biggest drags on Q1 performance? Apple and Tesla were the biggest detractors; it is almost as if the Mag 7 has been split.
AI remained all the rage in Q1; in fact, you would argue the separation of the Mag 7 is sort of based on those companies that appear to have an edge in AI so far compared to others. But make no mistake, this market advance was broad based and it was helped by the economic data. The U.S. economy, which had already been proving very resilient continued in a similar fashion. It was more on the global economic data front that improved in Q1.

Market Cycle

The improved economic data has been picked up in our Market Cycle framework, potentially alleviating broader near-term recession risk. The Market Cycle is comprised of over 40 indicators, all of which have historically had some efficacy in showing turning points in the economic cycle. Some signals are from the bond market, U.S. or global economic data, some from sentiment, fundamentals, etc. The view is that not ever signal works in each cycle, so we have a diversified approach with many signals.

Equally important with the total bullish signal trend is what is happening underneath. It has been a big improvement from indicators associated with the global economy that has led to the more recent improvement in signals. Global manufacturing surveys, copper prices, semiconductor price trends, commodities and emerging market price behaviour are all bullish now. These were all bearish six months ago.

This doesn’t mean the market will keep going up. The market cycle is not a market timing tool; it is more of an indicator of recession risk. If it’s healthy during a period of market weakness, it's safer to view that as a buying opportunity. Now we just need some market weakness.

Why Moderate Underweight Equity and Holding More Cash

There is no denying that we are a bit more cautiously tilted, even with improving economic data. Our analogy is that we are still at the party, just not cutting a grove on the dance floor and instead standing closer to the door. We do not believe this market advance of late has the foundation to prove resilient.

Earnings are a concern. If the economy were truly improving, why has this not translated into earnings forecasts? The chart below is global developed markets and headline consensus earnings estimates for 2024 and 2025. Earnings revisions and the market often move in tandem. Yet over the past year, we have seen market up and earnings flat, which means this is almost all multiple expansion.

We believe there are a number of headwinds for earnings growth. Higher rates and yields have a delayed impact on companies' income statements, which are starting to bite. Two years ago, S&P 500 companies paid about $50 billion in interest expenses during the quarter. In the latest quarter, that has increased to $70 billion. This is likely going to keep rising as fixed-term debt matures and is refinanced at higher rates.
Wage growth also remains elevated. The Atlanta Fed Wage Growth tracker is running at +5%, which is higher than inflation as a proxy for the company’s ability to raise prices. In fact, if inflation continue to cool, this too will be negative for earnings growth as a sign the ability to pass through higher costs is hitting some resistance.
Our other near-term concern is liquidity. The Federal Reserve is steadily reducing its balance sheet (quantitative tightening), and bank loan trends have been anemic. This should have resulted in less liquidity in Q1 had it not been for the draining of the reverse repo market. The repo market has fallen from almost $3 trillion to $750 billion over the past year, helping inject liquidity into the market. Now, there are many moving parts in these liquidity flows, but it is safe to say it has been positive for markets over the past couple of quarters. The problem is this may start to reverse in Q2 as the repo dwindles, and QT and other negative factors will likely become more impactful.
Add this to sentiment that appears extremely bullish (often a contrarian indicator) and very quiet market volatility. Plus valuations everywhere have become rather rich. The rapid rise in prices without earnings growth has pushed valuations higher. Not just in the U.S., even markets that had been on the cheaper side have become less so.

Put all this together, it remains prudent, in our opinion, to maintain a more conservative asset allocation. Including holding some extra cash as dry powder, should we run into market weakness in Q2.

Why We’re Warming to Emerging Markets

We’ve been underweight emerging markets in our multi-asset portfolios for some time. Our reasons were simple: the risks didn’t seem worth the reward, given global growth concerns. Over the past three years, emerging markets have lost 17%, while the S&P 500 has gained 38%. It gets worse the longer you look back. The performance spread over the past decade is over 200%. Because of this, emerging market equities remain markedly under-owned while at the same time becoming attractively valued and perhaps mispriced.

The whole purpose of our WHY Report is to consistently evaluate our positions and monitor the data. This monitoring is essential to prevent status-quo bias and remain entrenched in our view. As John Maynard Keynes said, “When the facts change, I change my mind- what do you do, sir?” Well, the facts are beginning to change, and the position is worth a deep re-evaluation to consider increasing exposure to emerging markets within our multi-asset portfolios. While the past decade saw a lacklustre performance in EM compared to developed markets (DM), several factors suggest that a potential reversal is nearing.
Reasons for optimism:
Central bank pivot: After a period of tightening liquidity, central banks in developed economies are nearing an inflection point, potentially shifting towards rate cuts in mid-2024. This shift from monetary tightening to easing typically benefits emerging markets. It can help stimulate global growth, and with inflation falling, financial markets are stabilizing. In addition, many emerging markets have already begun their easing cycles as inflation measures across emerging markets continue to trend lower thanks to lower commodity prices and support from currency appreciation and tighter monetary policy.
Undervaluation: Valuations in emerging markets are currently at a significant discount compared to developed markets. The valuation gap recently reached a 6-point spread, historically a good indicator of future outperformance for EM.

Earnings growth: In the coming years, emerging market companies are expected to see higher earnings growth than developed markets. While this hasn't translated to price performance yet, it suggests potential for future appreciation.
Recovering global trade: Global trade growth, which has been sluggish, is starting to show signs of improvement, particularly in export-driven economies like Korea and Taiwan. This trend is positive for emerging markets that are heavily reliant on trade. We expect the positive trend in global economic momentum to continue, although top-line U.S. GDP growth will likely moderate from its recent very strong pace. Global PMI continues to show signs of stabilization and is on the cusp of re-entering growth once again. The key factor for capital markets will be the improving breadth of global growth, encompassing not only the three major economies of the U.S., the euro area and China but also the bulk of the emerging economies as global trade recovers.
Currency appreciation: Local currency debt should get an added boost from EM currency appreciation this year. The MSCI Emerging Market Currency Index sets the weights of each currency equal to the relevant country weight in the MSCI EM Index. It’s seen considerable appreciation recently, which historically coincides with EM outperformance, but this has not been the case recently.

There is no question that emerging markets have experienced considerable challenges recently. But the key question is whether EMs offer better growth prospects than DMs. There remain big questions surrounding the direction and magnitude of global growth, especially with key developed countries in a technical recession. By contrast, EMs have shown considerable resilience, weathering higher borrowing costs, strong USD, inflation, and worsening trade conditions.
China – The shrinking elephant in the room
From a granular standpoint, many emerging markets have done quite well, including India, Taiwan and Brazil but China has held down the index. It’s impossible to hide the elephant in the room when considering emerging market exposure. Within the MSCI EM Index, China represents 26% of the index, including Hong Kong. A considerable amount of direct exposure. Indirectly, it also carries significant influence due to its influence in Asia and its impact on global commodity markets. Back in 2020, China peaked at nearly 44% of the index; its weight has shrunken considerably since then. Conversely, India is now up to 18%; ten years ago, it was just 7.2%. If these trends continue, India could overtake China in the EM index. This is noteworthy, considering it overtook China in terms of population a year ago.

So, what could turn China around? Unlike the U.S., Europe, and Canada, changes in China’s economic policy tend not to be communicated prior to implementation. Within Asia, Japan and Indian markets are flying, but China is the exception. Their stock market is among the weakest, and the economy remains under pressure.
Coming out of Covid, the market expected a big rebound from China that never materialized due to the imploding property market along with the crackdown on big tech. Most of the recent pressure began when the government tried to crack down on the buildup of leverage in the housing industry. The result starved developers of capital, and the reverberations continue to be felt today. Though recent announcements have tried to stimulate the economy, it’s been more of a few warning shots compared to the bazooka credit impulse we’ve seen previously from China. Simply put, government efforts to reignite the growth engine have been insufficient, and the country, which increasingly relies on the consumer, still has very low consumer confidence.
But this is beginning to change. While the Chinese consumer may not be buying Chanel handbags or iPhones at quite the same pace, gaming revenues in Macau have rebounded nearly back to 2019 levels. This is a positive development. Good spending may still be hampered, but experiential spending is healthy. Chinese air travel has already recovered and will likely extend its growth in 2024.

Chinese growth will lag peers like India. However, it’s very cheap, approaching near historic multiple spread to developed markets and stands to potentially rapidly benefit from any shift in government policy or inflection point in consumer spending. In addition, bearishness around Chinese equities may have reached a local peak. While far from uninvestable, the climate remains challenged, especially with the prospect of Trump returning to the Oval Office. Investors have tempered pessimism on China recently. Over the past couple of months, Chinese equities have matched the S&P 500. This is a good first step, but a full-on bullish tilt remains a bold contrarian call. But, like all contrarian calls, it can pay off generously to get in before the rest of the crowd.
Portfolio thoughts:
Overall, we believe the potential benefits of emerging markets are beginning to outweigh the risks. The combination of attractive valuations, improving economic fundamentals, and a potential shift in global monetary policy creates a compelling opportunity for investors seeking long-term growth.
We think China has promise and presents one of the few contrarian opportunities in global markets right now. However, for some, it is simply uninvestable. If this is the case, there are EM ex-China funds that would also be attractive. India, Taiwan, and South Korea combine for 64% of this index but are all positioned favourably to benefit from strengthening economic prospects.

How to Use the WHY Report

‘Just trust me’ isn’t good enough
Over the years, our encounters with advisors and portfolio managers have often led us down a familiar path paved with a single query: "Why?" No, it's not the existential pondering of the universe but rather a pragmatic inquiry into our portfolio construction choices. It's a fair question, really. Looking back on discussions surrounding portfolio positioning, in our minds, the rationale behind our moves was crystal clear. But should advisors take the plunge and determine if the position makes sense for them? Well, that requires a bit more than a casual conversation. Enter the “Why Report,” an amalgamation of charts, graphs, and commentary that specifically apply to the positioning of our model portfolios. Because pairing investment decisions with a little visual aid helps clarify complex concepts and addresses skepticism. After all, who doesn't love a good chart and rationale before diving into the financial deep end?
There are numerous portfolio positioning commentaries available for managers to review, and it's important to recognize that the Why Report isn't the definitive document among them. The report does not have a specific target audience, meaning whether you agree with the portfolio tilts or not, the report can have a use case within your practice. Its purpose is to create a report that maintains consistency, allowing it to be seamlessly integrated into the investment decision-making process.
While having an investment process framework is not a new revelation in portfolio management, any process should be open to improvements along its lifecycle. Our intention is to provide an optional improvement to the maturation of the process.
While conducting research and analysis to make a portfolio decision, the Why Report can be an excellent resource for sparking portfolio ideas . Perhaps you are considering investing in US equities. After reading the rationale for our portfolios being focused on equal-weight US equities, you find yourself in agreement or disagreement, which may result in a portfolio position change. This will naturally carry over into determining your asset allocation tilts within the portfolio. Clearly, being overweight in US equities over the last decade has been the correct investment decision, but has it gone too far? The report zeroes in on our portfolio tilts, offering insights that can guide decision-making for any portfolio. If our positioning aligns with yours, the report provides additional justification for your tilt. Conversely, if our positioning differs, the report offers contrarian perspectives that can ultimately benefit the overall portfolio.

As the portfolio decision-making lifecycle progresses, it necessitates ongoing reviews and adjustments. Whether evaluating performance, reacting to shifts in the macroeconomic outlook, or making rebalancing decisions, the consistent availability of the Why Report provides a reliable resource to lean on.
The report also equips advisors and portfolio managers with visual aids and speaking points to use in conversations with clients. Not all of the content will apply to discussions or communications, perhaps none of it will, that will of course depend on the client. Also, this is not solely intended for portfolio managers. Clients are also able to benefit from this report, providing them with material to ask the right questions when it comes to how their investments are being managed by their trusted advisors.
If you are interested in improving your investment management process, we encourage you to sign up for Macro Strategy and Portfolio Construction Insights . Every month, we will provide subscribers with the Why Report (latest edition HERE ) . The content will not change drastically from month to month to be consistent, but any adjustments will be well reflected, and all charts will be updated to the most recent date. Additionally, we will include our monthly update s urrounding our multi-asset portfolios, which will provide an in-depth commentary on the previous month and how those portfolios are positioned. Outside of the monthly distribution, subscribers will receive trade alerts and due diligence reports on the underlying holdings. Trade alerts will be paired with an in-depth rationale to provide insights into our thought process and portfolio evaluation.

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.

IPOs - Where Art Thou?

website@sitemodify.com (Website Editor) — Mon, 25 Mar 2024 15:24:00 GMT

No denying the equity markets are in the throws of a strong advance. The S&P is up 21% over the past six months, Europe is up 19%, Japan 25%. And given the even stronger gains in pockets such as AI, there is no shortage of people talking bubbles. Ourselves included ( Ethos from a few weeks ago ) but it isn’t a system wide bubble, more isolated mini bubbles in our opinion. Doesn’t mean it won’t hurt at some point, yet unlikely to be overly destabilizing. Fact is, a number of key ingredients are missing to label as a major bubble. Equity flows is one as there isn’t really a rush of cash coming into the market as measured by fund & ETF flow data. And another crucial ingredient is the IPO market. Yesterday Reddit IPOed (Initial Public Offering) with an offer size of $748 million and closed on day one at $1.25 billion. That gives the company a total value of $7.5 billion, not bad given $800 million in sales during the last 12- months. IPOs doubling on the first day of trading was a weekly occurrence in the tech bubble, yet this was anything but regular. The IPO market has remained very quiet. In North America $5 billion of IPOs began trading so far this year, on pace for the bleak annual pace for the past two years of $17B in 2023 and $22B in 2022. Even more anemic is Canada, with virtually no IPOs in 2024 so far.

Markets strong, lots of indices making new all-time highs, so why is the IPO market so dormant? 2021 was an investment bankers dream, fuelled by strong equity markets and lots of mini bubbles in things like clean tech, profitless tech, digital assets….the list goes on even including the non-fundamentally driven rise of Gamestop, coincidentally fuelled by the Reddit crowd. To be clear, Reddit announced its IPO in 2021 and didn’t start trading till just now.
It is not just the IPO market that is eerily quiet, mergers and acquisitions (M&A) have also been rather subdued. The normal playbook is later in a bull market, corporate leaders start getting more aggressive. And to fuel growth faster than normal organic initiatives, they turn to buying one another. Helping this process is high valuations for the buying company’s equity or easy access to credit. Perhaps we are not seeing as much M&A activity as the availability of low cost credit appears to be over, making it more expensive to lever up and buy one of your competitors. Yet no denying the valuations among many equities are at historically high levels.

Of course the question is why. There are likely a number of contributing factors to the dearth of IPO and M&A activity. As we pointed out the higher cost of capital has made it more challenging, the greater the cost of doing a deal the higher the expected rate of return must be. Strapping on more debt to buy a competitor or other business now requires a lot more expected benefit than it did when capital was cheap and plentiful.

No doubt the rise of private equity has played a part. Companies are now staying private much longer in their growth stages and using private funding sources. If the equity market environment isn’t just right, many companies may continue to opt for private funding over tapping a less receptive public market.

One of the other missing ingredients may be confidence. Chief Executive magazine has a monthly survey of CEOs asking how they would rate the economic outlook for the next year on a scale of 1 to 10. Confidence obviously falls during recession and it also fell in 2022 during the battle against inflation. And while inflation has calmed, markets have recovered and even financial conditions have returned to normal levels, CEO confidence is still on the lower side. Perhaps the uncertainty of recession risks and lingering inflation are weighing on their minds. Nonetheless, lower confidence equals less M&A and fewer IPOs. On a positive note, this confidence survey has been gradually improving.

Final Thoughts

If this were a broader bubble market environment we would be seeing a lot more corporate activities from mergers, acquisitions or tapping the public market for dollars. Yet, it also demonstrates the challenges companies are facing with the higher cost of capital due to higher yields. And given executives lack of confidence about the future, it likely encourages more of a cautious or wait-and-see attitude.

Maybe the Reddit IPO will become infections and inject some optimism for those waiting to hit the market. Or maybe the new highs of markets will help. Or stabilizing of bond yields. There is likely a lot of pent-up demand for raising capital or doing deals or going public. Another factor that may encourage an end of this IPO drought is performance of those that had the guts to IPO. The Renaissance IPO index tracks the performance of IPOs for two years. A bumpier road yet IPOs have certainly been beating the broader market. Maybe the deal drought is coming to an end.

— Craig Basinger is the Chief Market Strategist at Purpose Investments

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.

Inflation – Not going quietly into the night

website@sitemodify.com (Website Editor) — Mon, 18 Mar 2024 15:22:00 GMT

The primary cause of the market declines in 2022 was inflation and the subsequent response by central banks. Rates higher, yields higher, stock prices lower… yuck. The stock market rally in 2023 was a bit more complicated but a big driver was inflation coming back down, opening the door for central banks to stop raising rates and for bond yields to stabilize. Yay. Now with 2024 well underway and the equity market up smartly, should we be concerned that inflation doesn’t seem to be going quietly into the night?
Last week, the U.S. Consumer Prices Index (CPI) data came in a bit warmer than expected by the consensus. The month-over-month change was 0.4%, both headline and core, excluding food and energy; this brought the year-over-year to tick up a bit from 3.1% to 3.2% and the core from 3.7% to 3.8%. This probably wasn’t a big deal; the equity market shrugged it off, and bond yields moved a bit higher in response. We could argue the finer details, such as insurance moving higher or shelter, but really, it was a lack of price deflation in goods. Good prices had been falling for the past six months, helping overall inflation come down. There was further evidence goods deflation may be waning in the Producer Prices data released later in the week. The market had more of a negative reaction to this information.

It gets a bit more challenging as well due to base effects. Given more folks pay attention to the year-over-year inflation reading, this is poised to move higher. It had been moving lower partially because, for the past six months, the monthly number being dropped from a year ago averaged 0.4% (high-ish). So, any monthly reading below this 0.4% would result in the year-over-year reading falling. However, we are about to drop a number of months that averaged much lower inflation, so future months will need to be below 0.2% to see headline CPI fall.
A resurgence of inflation, even if partially due to base effects, will likely see more folks talking up similarities with the 1970s. The 70s saw an initial move higher in inflation, which faded and then rose again. Please note I just jammed an entire decade of inflation into one sentence, which is an oversimplification. In reality, there were many twists and turns along the way. While this is certainly possible, we would point to a major policy mistake in the 1970s. The Fed started cutting rates even before inflation peaked. Of course, hindsight makes it easy to say this today. Recently, the policy mistake was to wait too long before raising rates and then to maintain a restrictive level as inflation has come down. Worth noting a recurring trend has been for the market to keep pushing expectations of rate cuts further out.

Also, it's fair to say this just isn’t your 1970s economy. Even if inflation does pick up in the near term due to base effects, the trajectory should remain to the downside over the next year. Shipping prices have ticked higher, which feeds into goods pricing. Commodity prices have moved up recently as well. On a positive, if you look at factory pricing in China, this continues to be disinflationary. Yet most developed economies are more tilted to services than goods. U.S. CPI is broken down into 14% food, 7% energy, 19% goods and 60% services. The good news is services inflation doesn’t move around nearly as much as other components; the bad news is that it moves very slowly.

Despite goods inflation ticking up of late, investors should not read too much into this as it tends to be more volatile. More importantly, the lagged inflation components are starting to roll over. The two biggest drivers of services inflation, rents and wages, are cooling. Small business wage and price intentions are softening. This should help inflation continue to cool as 2024 progresses, albeit not in a straight line that can include some countertrend moves, like the one happening right now.

Why All This Inflation Talk?

Inflation is essentially a tax on wealth; higher inflation makes everything worth less in real terms. This includes your portfolio. Even though we believe inflation is likely going to become lower, it may flare up further downfield. Many of the factors that helped keep inflation lower or moving in a downward trend during the past couple of decades have softened. Inflation may well become a recurring risk to portfolio and financial plans. Ensuring a reasonable allocation to asset classes that can help offset will likely become a larger allocation in the years ahead. This includes equities, more on the value factor, and real asset exposures.

More importantly, for today, any variation in the path of inflation can quickly translate into bond yields. The recent CPI and PPI prints triggered the 10-year U.S. Treasury yield to move up from about 4% to 4.3%. That may not sound like a big deal, but over the past year or so, the equity market has been very sensitive to bond yields when above 4%. What does that mean? Well, when bond yields have been below 4% since the start of 2023, there has been a weak relationship between the movement in bond yields and the stock market. However, when it was over 4%, this relationship became much stronger and more reliable.

This relationship will not endure as other factors will become more impactful. For now, though, the equity market does not like yields moving higher when above 4%. The good news is that when yields fall, the equity market will potentially rejoice, as it did when yields fell from 5% at the end of October to 4% by the end of the year.

Final Thoughts

Given our current view that this recent uptick in inflation will prove to be a short-term counter trend, we don’t believe the rise in yields will persist either. And should it move further, that may create another bite at the apple to add duration. Or even add equities if it translates into equity market weakness. For now, we are not getting concerned over the uptick in inflation data.

— Craig Basinger is the Chief Market Strategist at Purpose Investments

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.

Your 101 on How Canadians are Taxed

website@sitemodify.com (Website Editor) — Thu, 07 Mar 2024 18:47:00 GMT

The time to file your 2023 personal income tax return is just around the corner. Need a reminder about how Canadians are taxed… read on.
Individuals who reside in Canada are taxed on the worldwide income they receive in the calendar year. There is a federal layer of tax and a provincial layer of tax. The tax rate you pay depends on the amount of taxable income you received in the calendar year and the tax brackets you fall into. The 2023 Federal tax brackets are shown in the table below (which are indexed each year for inflation). Each province also has its own tax brackets and rates.

As you can see, the rate you pay will be a blended rate depending on your taxable income for the year. You pay Federal tax at 15% on the first $53,359, then the rate increases to 20.50% for income above $53,359, etc. Once your income is over $235,676, then every dollar after that will be at the 33% Federal tax rate. With provincial taxes added on, the top combined income tax rate ranges from 44.50% in Nunavut to 54.80% in Newfoundland and Labrador. Check out these links for the combined Federal and Provincial tax rates for the province in which you reside: E&Y (rates and a personal tax calculator), KPMG (tax rates and brackets), as well as this easy-to-use Tax Calculator . There is an alternative minimum tax (AMT) that could apply if you have certain preference items. A taxpayer pays the higher of AMT and regular income tax. There are changes to the AMT for 2024, outlined in this article Alternative Minimum Tax Changes – What You Need to Know.
Some types of income are more tax efficient than others. If you earn capital gains, only 50% of the gain will be included in your taxable income, while your employment and investment income will be fully taxed. Withdrawals from your RRSP or RRIF are also fully taxable. Dividends receive preferential tax treatment through the use of the dividend gross-up and tax credit. There are two types of dividends: eligible and non-eligible dividends. Non-eligible dividends are taxed at a higher rate than eligible dividends. Usually, dividends you receive in your investment portfolio would be eligible dividends (dividends from publicly traded securities). While preparing your 2023 tax return, review the types of income you earned and evaluate if you should make a change to the types of income you are receiving. However, don’t let the taxation of the income be the only reason for changing an investment. Talk to an Advisor to help match your income to your planning goals.
Certain expenditures are deductible from your income and there are also tax credits available that can reduce your tax liability. The CRA’s website has a page that describes the deductions and tax credits that are available. To be applied to your tax return, the expenses must have been incurred by December 31 of the tax year in question (except for RRSP contributions which can be made 60 days after year end and still reduce the prior year tax liability - so for the 2023 tax year, RRSP contributions can be made up to February 29, 2024). For employees, there are less deductions than for those who are self-employed. The most common deductions are for RRSP contributions, childcare expenses, capital losses and investment related expenses. New for 2023 is the first home savings account (FHSA). The contribution limit for this account is $8,000 and is tax deductible. For more information on how this account works, consult CRA’s First Home Savings Account page. The most common credits are for medical expenses, charitable donations and tuition fees.
Of course, there are also ways to save taxes on income in the long-term by investing in a tax-free savings account (TFSA) or registered education savings plan (RESP), for example. While contributions to these types of plans don’t result in a deduction on your tax return, the income earned in the plans are not taxable while in the plan. For TFSA, there is no tax to you on withdrawal. For RESP, the funds are taxed in the hands of the student. The TFSA contribution limit for 2024 is $7,000. If you have not made a TFSA contribution in the past, the contribution room carries forward. For example, if you were 18 years or older in 2009 and have never contributed to a TFSA, you could contribute $95,000 to a TFSA in 2024. For more information on how TFSAs work, read How to Use a TFSA to Get Better Investing Results and for more information RESPs, check out Getting the Most from Your RESP, SMART TALK… about registered education savings plans (RESPs) and this Start Education Planning Now calculator.
Now is also an opportune time to review your overall financial and estate plan which would include your wills, power of attorney and representation agreements, life insurance needs as well as critical illness and disability insurance.
Contact us to learn more or if you have any questions.

Source: Charts are sourced to https://www.thelinkbetween.ca/

The contents of this publication were researched, written and produced by The Link Between (https://www.thelinkbetween.ca/) and are used by Echelon Wealth Partners Inc. for information purposes only.

Disclaimers

Echelon Wealth Partners Inc.

The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Echelon Wealth Partners Inc. or its affiliates.

Assumptions, opinions and estimates constitute the author's judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them.

Alternative Minimum Tax Changes – What You Need to Know

website@sitemodify.com (Website Editor) — Thu, 07 Mar 2024 18:46:00 GMT

Did you know that Canada’s Federal Budget proposed changes to the Alternative Minimum Tax (AMT) rules with draft legislation that came into effect on January 1, 2024? So, what is AMT and how does it affect your tax planning?
Under the existing AMT rules, the most common situations where AMT could apply is where you have large capital gains and especially if the lifetime capital gains exemption was used on a sale of qualified small business corporation shares or qualified farm and fishing property.

What is AMT?

The AMT was introduced in 1986 as a parallel tax to the regular tax system and applies to individuals, but not to corporations. In general, individuals are required to pay the higher of AMT or regular tax. To calculate the difference, first regular tax is calculated (at progressive tax rates). The next step is to calculate taxable income for AMT which is determined by adding back certain “preference” items into your regular taxable income. There is an exemption amount that is deducted from the AMT taxable income of $40,000* and any excess income is taxed at a flat tax rate of 15%* and certain non-refundable tax credits are allowed to reduce the amount of tax owing. So if your taxable AMT income is under $40,000, AMT will not apply and just the regular tax will be payable. Any additional tax paid under the AMT can be carried forward as a credit to offset regular tax for seven years. (AMT does not apply in the year of death of a taxpayer.)

What are the changes?

The 2023 Federal Budget has proposed changes to broaden the tax base subject to AMT, increasing the tax rate but also increasing the exemption amount. The following table highlights some of the proposed changes, but please reach out to us if you require more details.

What do you need to do?

These proposed changes could result in AMT applying if your taxable income (calculated for AMT purposes) is in excess of $173,000. In addition to being aware of the implications of AMT when there are large capital gains in a year (as well as planning for it), starting in 2024 you will also need to consider the implications of significant interest deductions (for example, if using a leveraging strategy) or large donations (especially gifts of capital property as these donations not only have the 50% limitation on the donation tax credit, but also 100% or 30% of the gain, depending on the type of property, could be included in taxable income for AMT).
If you think AMT may apply to you, contact us to discuss planning options.
*$40,000 is the exemption amount as of the date of this article and the rate of tax is 15%.

Source: Charts are sourced to https://www.thelinkbetween.ca/

The contents of this publication were researched, written and produced by The Link Between (https://www.thelinkbetween.ca/) and are used by Echelon Wealth Partners Inc. for information purposes only.

Disclaimers

Echelon Wealth Partners Inc.

The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Echelon Wealth Partners Inc. or its affiliates.

A Bubbly World

website@sitemodify.com (Website Editor) — Mon, 04 Mar 2024 16:43:00 GMT

The history of markets is filled with examples of bubbles, creating great wealth on the way up and subsequently destroying much wealth on the way back down. Some date back centuries, such as the Mississippi Company, tulip mania, South Sea trading or the railway bubbles. Some are more recent, such as the nifty 50, dotcom, housing in the early years of this century and marijuana in the 2010s. In each instance, there was always a solid foundational case supporting the bubble because the world was changing in one way or another. Yet, in each instance, markets became over-enthusiastic and went too far, inevitably resulting in the popping of the bubble.
There are two constants investors should remember when investing in potential bubbles – markets always go too far, both up and down. And gravity exerts its force, inevitably.

In the past few years, one could argue that bubbles have become more widespread, albeit smaller in size. For instance, clean energy (ETF proxy), up 312% from the start of 2020 to the peak in early 2021, was followed by a -83% decline over the past three years. Now we have _______________ (insert whichever rapidly rising industry or sector you like). Could it be crypto (again), Artificial Intelligence or a fat bubble (companies with drugs that combat obesity)? Of course, you can also argue that things are changing, and companies or investments positioned to benefit from those changes are simply enjoying rising future prospects. It is usually a combination of both.
Markets change over time and we would contend many of the changes in the past decade have contributed to a market more susceptible to forming bubbles. Not the same as some of those past ‘mega bubbles’ that can rock the entire market, smaller ones that don’t seem to last as long but still share similar characteristics. Below are some of the contributing ingredients or seeds that are contributing to a more fertile market for growing bubbles:
Too much money - The money supply has historically grown somewhat in line with nominal GDP. But in the 2010s, it started to grow much faster – a follow-up response to the financial crisis. This resulted in a rising savings rate as well. Both these trends exploded to the upside in 2020/2021 due to the pandemic. It was a period in which many mini bubbles inflated – crypto, disruptive tech, and even used video game retailers. The list was long.

In 2022, many of those mini bubbles deflated as money growth began to contract, central banks raising rates, etc. And also, many of those mini bubbles went too far. The gap between the economy and money supply is improving, which may be a risk to anything in bubble territory today. Yet there is still way too much money floating about, which is one of the fuels for a bubble.

Fearless investors – For investors who have only experienced markets after the 2008 financial crisis or for those with short memories, it has been a rather pleasant experience. From 2010 till 2020, declines in the equity market tended to be shallower and shorter in duration than in previous decades. Markets would drop and recover pretty quickly, encouraging the ‘buy the dip’ mantra. Then, the pandemic drop in 2020 solidified this view, as the drop may have been bigger, but the bounce back was incredible.

2022 threw some cold water on this strategy of buying any weakness, yet with markets now making new highs, the buy-the-dip mindset appears alive and well. Investors just don’t seem to be fearful anymore, which is another key ingredient for bubbles.

Less Fundamentals – Everyone probably believes the value of something is its price in the market. Apple closed at $179, making it worth $2.8 billion based on its price. Maybe. The price of any asset in the market is where the marginal seller and marginal buyer meet. If there are more motivated buyers than sellers, the price rises until the higher price entices more sellers.

Yet more and more volume is driven by passive investment vehicles that are simply transacting due to flows and give no thought to the price. Add to this trade flow momentum strategies, HFT, option book managers, etc. None of which will say Apple is worth more or less than $179. They are price acceptors, accepting whatever the price is.

Countering this group is active managers or investors, that have a view on the value of an investment and will often transact if that price gets too far away from their perceived value. They do not believe value equals price and attempt to profit from the discrepancy. The problem is over the past decade, the amount of money in price-accepting strategies has kept growing faster, and the active group has kept shrinking.

We are not saying the market pricing mechanism is broken. However, this increasing tilt has created a more fertile market for bubble formation. Price and value can become very distant from one another.

Access – One steady trend is the democratization of investment strategies. If you wanted to buy one of the nifty 50 stocks in the 1970s, you probably had to call your broker to instruct them to buy some shares of Xerox or Avon. Today, with a tap on your smartphone, you can buy shares of Nvidia, trade some bitcoin or buy an ETF that holds companies focused on cyber security.

Easier access is a sign of progress. Making things better, faster, cheaper or easier is how our economy progresses. Easier access has also made investing more fun and exciting. It has also given rise to more speculators or investors throwing a bit of money at a more speculative investment idea. Call it play money or mad money; there is a lot of it out there.

Social Media – Information travels faster than ever, which means ideas travel faster, too. The Reddit crowd lifted a near-bankrupt used video game retailer from a few hundred million market cap to over $20 billion. The company is back down to $4 billion and has been losing money since 2019. This is an extreme, but the speed at which ideas become mainstream has dramatically increased over the years.

The speed of ideas or thought dispersion across investors likely feeds quicker bubble formation than in years past. Just look at the Google search trends for Artificial Intelligence.

Artificial intelligence is either a bubble now or becoming a bubble. Here lies the rub – bubbles are only bubbles after they burst, which clearly does little to help investors. There is lots of money to be made during inflation and lots to lose during deflation. But there is no standardization in how big they get, how long they last, or what causes them to start the descent. A bubble can occur in a narrow pocket of the market and may end without a broader recession or anything macro-oriented.
Before we dive into investment strategies for a bubblier world, let’s all just realize it is our behaviours that create these bubbles. Much about bubbles can be grounded in behaviour finance and momentum.

Biases & Bubbles

Market momentum refers to the tendency of asset prices to persist in their current trend. In essence, it's betting on the winners. While there isn’t a single individual credited with “proving” the momentum factor, it’s been widely documented by many academics across various markets for some time. This factor can be quite powerful, but it is also a double-edged sword. It contributes to the formation of bubbles, driving asset prices to levels that deviate significantly from their intrinsic values. There are many explanations behind market momentum as a factor. Some technical but most explanations rely heavily on the work of behavioural finance.
The behavioural biases behind momentum:
Anchoring and Underreaction: Tendency to overweight the importance of the first information that we learn. Social anchoring can also increase pressure toward conformity and acceptance of the status quo. It tends to anchor investor expectations to past performance, such as extrapolating past trends into the future. One way it can fuel momentum and contribute to bubbles is it causes investors to underreact to news initially, which keeps prices below fair value for too long. Once price trends do finally develop, they remain strong for some time as prices catch up to their ‘fair’ value, and often go beyond. Confirmation Bias: Closely related to anchoring is confirmation bias. It’s the tendency to overemphasize the importance of information that reinforces our view while ignoring contradictory evidence. The bias can reinforce momentum by focusing investor attention only on information that supports the current dominant narrative, ignoring warning signs at their peril. In general, we look at price moves as representative of the future we want to see and may invest more in securities that have recently done well and less in those that have not done as well, thereby causing stocks to trend for too long.

”People can foresee the future only when it coincides with their own wishes, and the most grossly obvious facts can be ignored when they are unwelcome.” - George Orwell
Herding: Herding is a strong physiological as well as psychological bias. It’s primordial; we’re physically wired to prefer the pack, and it is associated with the release of oxytocin, reinforcing the positive feelings of trust and security. It’s far more natural as an investor to jump on the bandwagon and ride the wave with the rest of the herd, even if we see it fast approaching the rocky shore. As humans, we think in herds, go mad in herds, but only recover our own senses slowly, and one by one.
Overconfidence – This bias is simply believing your skill and ability are greater than they really are. We’re all prone to overestimate how much we understand about the world and to underestimate the role of luck. The sad reality is that overconfidence can lead to suboptimal outcomes; it is the strongest swimmers who are more likely to drown. Overconfident investors underestimate the risks associated with momentum-driven markets, leading them to engage in excessive buying without fully considering the fundamentals, which contributes to bubble formation.
Not only that, but overconfidence also triggers other biases, such as hindsight bias as well as self-attribution bias. In a raging bull market, it is easy to attribute success to skill, causing investors to buy more, which only pushes prices higher.
Disposition Effect: Investor s tend to sell winners too early in order to lock in gains while holding onto losers too long in the hope they will make back what they lost. It also brings in ideas around prospect theory and mental accounting. How often have you heard that it is only a loss if it is realized? When negative news hits, investors can be reluctant to sell stocks that have had a strong run. This action delays the price discovery prices, which contributes to the momentum effect and continuation of bubbles until investors react all at once.
Besides the behavioural factors behind momentum, there are also a number of structural factors as well. These include liquidity constraints, transaction costs and a delay in adjustment to new information that leads to trends. Investors with different time horizons react to news and events at their own pace. The staggered approach can supply enough sustained buying and selling pressure to begin the feedback loops that the behavioural biases thrive on.
Reflexive Bubbles
For anyone who has read Soros, this theory should sound familiar. Positive feedback between prices, expectations and economic fundamentals prevents economic equilibrium. At its core, the theory of reflexivity offers a unique perspective on how stock market bubbles can develop. In an efficient market, bubbles wouldn’t exist. The Theory of Reflexivity focuses on the interactions between market participants' perceptions and reality. Here's a simplistic graphic on how it applies:

The key is the important role psychology and investor sentiment play in market movements. Bubbles are not just about irrational exuberance but also about the self-fulfilling nature of strong market narratives. By understanding the interplay between perception and reality, investors can be more mindful of the risks associated with bubbles and make informed decisions. Investing is hard. It might seem easy during a bubble, and the allure of easy money is strong but investors should remain diligent to avoid the eventual pop.

Investing in a Bubblier World

If we are living in a world more prone to bubbles (or mini bubbles), should our investment process change? And how do you make money from bubbles while protecting yourself from a bubble’s downside? We believe there are a few components that are crucial for success: 1. Early bubble identification 2. Prudent exposure – sizing 3. Rules
Early bubble identification – This is more challenging than you would think. There is a lot of content about how the future of society might look, and some of this is really well-founded. No doubt AI has taken off; what about nuclear fusion or quantum computing? You never know when the market is going to start getting excited about the next one. Or, in other words, when will a theme or idea start going mainstream, which is a prerequisite of a bubble?
One option is to do a ton of reading and research about future trends and become a futurist of sorts. And then place small exposures on many ideas. Call it diversification across ideas. Another option is to use momentum. You won’t be in before the bubble starts to inflate, yet price appreciation may identify a bubble early enough to hop on board. There will be false starts with using momentum, but much less reading is required.
Prudent exposure – sizing – If it goes up 50% in a year, it can just as easily go down 50% in a year. This is higher risk investing, which requires risk controls. One effective approach is sizing relative to an overall portfolio. Essentially, not risking too much. And while invested, revisiting the size or rebalancing can address portfolio drift risk.
In the very early days, sizing could be smaller. As a bubble continues to go mainstream, increasing and as the position becomes a size risk in a portfolio, begin harvesting.
Rules - The difference between a strong bull market and a bubble is not always clear at the moment. Only in hindsight does the bubble stand out. Feelings of regret are plenty. Regret of selling too early, or not selling all. In this aim, investors ideally ride the bubble all the way to the momentum battleground. It’s the area where market momentum encounters resistance either from investors employing contrarian strategies or simply from the gravity imposed by the dislocation of underlying economic realities and valuations. The battleground is where the tug of war begins and where astute investors can read the signs and see the tide of sobering rationality ahead.
There is no simple rule to put in place rather rules-based strategies using the power of trends, market technical and our behavioural biases can all add sell discipline and help provide an exit strategy. By taking profits when momentum begins to stall or sentiment begins to swing. Investors with a nuanced understanding of momentum, market psychology, risk appetite and the fundamentals can increase their chances of adeptly manoeuvring around the battleground. Some of the more useful strategies include:
Trailing stop-loss orders – Simple trailing stop-loss orders or selling targets based on deviation from recent highs can help lock in profits and limit losses as momentum wanes. Moving the stop-loss orders as prices move higher helps to mitigate the risk of holding onto a stock for too long during a bubble.
Contrarian Signals: Investors can incorporate contrarian indicators or sentiment measures to find potential turning points in market trends. By monitoring sentiment indicators for signs of excessive optimism or pessimism, investors can add sell discipline by exiting positions when sentiment reaches extreme levels, potentially signalling the peak of a bubble.
Technical indicators: These can be a useful way to measure trend strength and identify breakdowns, such as moving averages, volatility bands or relative strength.
Rebalance Discipline:
The KISS principle stands for "Keep It Simple, Stupid." It is a widely recognized principle that suggests simplicity and clarity should be always prioritized. Managing risk in an investment bubble doesn’t have to be complex. One of the simplest ways investors can manage risk is simply to rebalance. Portfolio rebalancing isn’t sexy, it doesn’t attempt to time the market, but rebalancing based on predetermined criteria whether time based, or value-based, trims overvalued positions and reallocates capital to undervalued assets. It adds discipline to the investment process, and discipline is a key ingredient to building long term wealth and not chasing short term gains.
Market efficiency would argue against the existence of momentum and even bubbles. Markets can be mostly efficient, but the argument that the price is always right is absurd. When you think about efficient markets, Markowitz probably comes top of mind, but I think about Bob Barker and Adam Sandler. Bob Barker always argues the ‘Price is Right’, while Adam Sandler aka Happy Gilmour famously noted “the price is wrong $!&@#”.

The Final Word

Bubbles are fun, exciting and dangerous. They also appear to be increasingly widespread. Having a thoughtful, disciplined approach that incorporates some hard trading rules can go a long way in enjoying success in our bubbly world. It does offer the potential for strong returns. We prefer using momentum as both a buy and sell signal. True, we blame bubble creation in part on momentum trading; the key is to avoid being late. Too late to hop on board and too late to exit are the biggest risks. Momentum can provide a defence against this risk.

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Greg Taylor and Derek Benedet Purpose Investments Inc.

Cash vs GICs vs Bonds

website@sitemodify.com (Website Editor) — Mon, 26 Feb 2024 16:46:00 GMT

So far this year, investors have piled into cash, added into bonds and sucked money out of equities. Apologies, we are going to use U.S. listed data here for convenience and because larger numbers are more fun. Based on ICI data, investors have sucked $25B out of equities, added $122 billion to cash and added $52 billion to bonds. The chart below is the rolling 4-week average flows into bonds and equities. Equities have remained sporadic over the past few years, with brief periods of inflows and outflows. In 2023, a solid year in the market, equity outflows were $133 billion, so the trend in 2024 remains much the same. Bonds, which experienced HUGE outflows in 2022 as yields rose, have been seeing more inflows of late.

While equity flows have been negative on aggregate, it does appear it is largely broad-based U.S. exposure that is being reduced. International is up a little, and if ETF flows are any indication, technology is attracting some flows. But we are going to pivot to cash and bonds. It shouldn’t be too surprising that the inflows to cash and bonds, with the most attractive yields in many years, are a strong lure.
The flows into cash vehicles have been incredible. Even more incredible is that cash inflows have historically coincided with periods of market weakness (see 2001, 2008, and 2020 in the chart below). Yet these current inflows are more about capital being attracted by a decent yield as opposed to capital fleeing equity markets and looking for a place to hide. More of a pull compared to a push. It is also important to differentiate where the dollars are coming from. If simply moving from a bank account that pays very little to a higher yield vehicle, it is possible that money will never move into more risk assets such as stocks or bonds. But some will, and that is one pile of cash sitting there.

Higher yields everywhere, from cash to GICs, to bonds, and even to dividend-paying equities, have created perhaps one of the most recurring questions of the past year – which is best between cash, GICs and bonds? We will tackle the dividend equities in another instalment.

Cash, GICs or Bonds?

It is not a simple question as much depends on the purpose of the capital and what happens next in these markets. For simplicity, we are going to reference High-Interest Savings Accounts for cash, and we pulled a preferred GIC offering as our proxy for GICs. Naturally, these are just estimates or approximations.

The really interesting aspect today is how similar yields have become across the three options. HISAs, even after the changing legislations (an update on that HERE ), are carrying a yield between 4.5 and 5%. GICs are a bit lower, at just above the 4% level. And Bonds, which do carry lower current yields in the 3-3.5%, have a baked-in gain given most are trading at a discount to par, which brings the yield to worst up to around 4.2%. So, really, they are all kind of clustered together, offering some decent yields.

Each of the three options do offer rather different characteristics that will behave differently depending on what markets and rates do in the coming quarters or years. The table below really tries to capture some of the more pertinent characteristics of each.

It really depends on what happens next. Here are three simplistic scenarios, with who wins or loses among HISA vs GICs vs Bonds.
#1 Inflation remains sticky
While not our base case expectation, what if inflation remains sticky or even accelerates? We have just seen U.S. CPI tick higher over the past few months. In this case, central banks are unlikely to start cutting rates anytime soon and could even raise rates. This would also likely translate into bond yields moving higher.

HISA wins as yields remain high, and any potential rate hikes would result in more yield with a stable value.
GICs do ok, given the high rate is locked in and while they would not capture any rate hikes the quoted price of the GIC would remain stable even if yields rose.
Bonds lose as higher inflation and yields result in lower bond prices.

#2 Goldilocks
Inflation continues its path down, allowing bank rates to come down a little. However, with a still resilient economy, central banks won’t be overly aggressive in cutting rates. All three options do ok under this scenario.

GICs win, given the coupon rate is locked in at what is now a higher level than the overall market.
HISAs do ok. The bank rate cuts result in a lower yield, but since there are only a few, the yield remains healthy.
Bonds do ok. Lower inflation and bank rates likely translate into bond yields coming down a bit, adding some capital appreciation to the current yield.

#3 Slow growth or recession
Inflation fades as the global economy continues to decelerate; this results in more aggressive central bank rate cuts. The recession also leads to a material fall in bond yields.

Bonds win as lower yields lead to healthy capital appreciation. There could be some credit risk, though, depending on the type of bonds held.
GICs do ok, enjoying the locked in yield. But in this case, the stable pricing of GICs is a weakness as their price would rise given lower bond yields.
HISA lags as the current yield comes down as central banks cut rates more aggressively.

These are very simple scenarios but clearly demonstrate some of the pros and cons of each option. Yet there are some even more important considerations. If the capital is just looking for a higher rate from, say, a chequing account, just lock in with GICs or go variable with a HISA. However, if the capital is part of an overall portfolio, it’s a bit more complicated.
Bonds tend to do well when the market goes risk-off (aka equities lower) – This is the reflexive nature of bonds & equities. While it doesn’t always work, like in 2022, it does work most of the time. Bonds provide a ballast for the portfolio and often will move in the opposite direction, especially when equities are falling. HISA and GICs offer price stability but not this reflexive behaviour.
Optionality – What if equities fall 20 or 30%? The ability to rebalance during more volatile periods in the market is a very important process that adds value over time. If too much capital is locked in, this reduces the ability to rebalance. Bonds and HISAs offer optionality.

Final Thoughts

There is no right or wrong answer to the original question; in fact, much depends on the purpose of the capital and what happens next in the market. And while that may complicate the process, at least today, there are many choices and options to find yield. A few years ago the demand for cash, GICs and even bonds was far less than today. It's nice to have choices.

— Craig Basinger is the Chief Market Strategist at Purpose Investments

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.

Nobody Controls Risk in an Index

website@sitemodify.com (Website Editor) — Tue, 20 Feb 2024 20:51:00 GMT

There has been much chatter over the past couple of weeks about the rise of passive investing distorting the market, increased concentration and resulting in less price discovery – I would certainly encourage folks to listen to the Masters in Business February 8 podcast with David Einhorn with the caveat that his views are certainly at one end of the spectrum, albeit with some rather compelling points. The steady redemptions over the years from active managers and reallocation to passive have created more steady selling pressure in strategies that focus on value or fundamentals. Meanwhile, increased flows to passive are resulting in more of a momentum trade. Passive index strategies never met a PE ratio they didn’t like.

We don’t believe this has broken the market but would certainly concede it has made markets a lot more risky. You have likely read reports highlighting the concentration risk in the S&P 500, driven by the Magnificent 7 (or whichever moniker they are going by today). Today, these few names comprise about 30% of the largest equity market in the world. And over the past year, with the S&P 500 up 18.6%, 9.1% of this rise is attributed to those 7 names. Safe to say the S&P 500 is rather concentrated, and leadership is rather narrow.

In fact, this concentration, coupled with US equity market outperformance over the past decade, has really distorted even the global equity markets. If someone were to buy a capitalization-weighted index capturing all equities traded in developed markets, that does sound like it would be well diversified. Sadly no. The Bloomberg Developed Market index currently carries a 70% in US equities. Clearly, my old rule of thumb that global markets were 50-55% US, 30% Europe, and the rest spread out is antiquated.

Equally incredible – Nvidia is now roughly the same weight as Canada. Microsoft and Apple are roughly the same weight as all of Asia. This naturally leads to thinking this is tech bubble 2.0, referring to tech bubble 1.0 as the 1990s internet bubble. Concentration is similar, the US equity weight globally was also similar and performance being driven by a narrow handful of names is similar. However, the 1990s was dominated by telecom equipment names, the builders of the internet backbone. This was much more narrow than today. Simplifying each company’s many business lines, Apple is a device maker, Microsoft is software/cloud, Nvidia is a semiconductor maker, Amazon is a fulfillment/cloud company, while Google and Meta sell digital ads. It is a more diverse business than the 90s tech bubble leaders.

And let’s not forget, these companies have earnings, material earnings at that. Across the Mag 7, they have trailing pretax income of over $400 billion. That is a far cry from valuations in the late 1990s when new valuation metrics such as price to eyeballs were being bantered around given a lack of actual earnings.

In fact, today’s market probably has more similarities to the nifty 50 than the 1990s tech bubble. For those not familiar, the nifty 50 was a bubble in high-growth stocks that ran from the late 1960s to the early 1970s. It was a decade led by growth over value (similar to today), and the growth names became dominant in the index as they grew faster over time (again, similar to today). The names in the nifty 50 were pretty diverse, including General Electric, IBM, Coca-Cola, Xerox and, of course, Avon Products & Polaroid.

The nifty 50 were called one-way stocks; you just had to own them, and valuations didn’t matter. Furthermore, portfolio managers had to own them to keep up with the index. Sound familiar? Today, there are more and more managers altering their strategies to incorporate some Nvidia or Amazon, simply trying to keep up with the index. And there is a cohort that believes these companies are recession-proof, given their handling of the 2020 pandemic-induced recession and strong balance sheets. We believe that view is misguided, and the pandemic recession was a unique confluence of events that hopefully won’t happen again during our investment lives.

So what ended the fifty 50 era? Two things: inflation and a recession. This combination dispelled investor’s view that these companies had such great prospects they had become immune to the business cycle. Given the high concentrated weight in the index of those growth names, it led to a seven-year drought without the index making a new high. Rather similar to the drought of new highs following the tech bubble of the late 1990s.

We like both active and passive strategies, really depending on the market and the desired exposure. Still, it’s imperative to know the underlying exposures in both active and passive strategies. Most passive strategies, often in ETF form, are tracking market capitalization-weighted indices. That means whatever trades on the market or sits in that index carries a weight, given the size of the company. There is no committee that says the S&P 500 has too much technology (29%) or too little energy (4%). Or for the TSX with 31% financials and 0.3% health care. Nobody controls the risk in an index, which is why it remains important to understand the exposures and how they combine with the rest of a portfolio. Hence, if you want more international exposure, the World Index is not the answer.

Final Thoughts

This does have the characteristics of a bubble. The unknown is whether it has a few years to go before peaking, or a few months or only days. One could easily argue that the nifty 50 and tech bubble ended simply because they went too far. Expectations had become so high that any stumble would have a significant blowback on the share prices. Recession simply causes more companies to stumble around at the same time, even if in different industries.

Whenever it does end, there is likely going to be a long hangover.

— Craig Basinger is the Chief Market Strategist at Purpose Investments

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.

Fall in Love with these Income Splitting Tips for you and your Spouse

website@sitemodify.com (Website Editor) — Wed, 14 Feb 2024 18:15:00 GMT

Want to make the most of your savings in retirement with your married or common-law spouse? The trick here is not knowing to save, but knowing how to save. Which accounts make sense?
(Keep in mind, we're just going to cover the basics here…but if you need help, your advisor is just a call away.)

Spousal RRSPs

RRSPs are a popular retirement savings vehicle for many Canadians. Can you contribute to your spouse’s account? Sort of – but not exactly.
You can’t contribute to a spouse’s individual RRSP. That’s a no-no, leading to potential attribution penalties coming by way of a CRA audit.
But here’s the trick: you can contribute to a Spousal RRSP. And there might be a very good reason to do that.
Don’t think that 50 percent pension splitting is enough to fully split retirement income for you and your spouse? Is your employment and future retirement income expected to be significantly higher than your spouse’s? Or vice-versa? That’s when contributions to a Spousal RRSP could be a good idea.

Zakk and Ella show how income splitting with Spousal RRSPs works

Let’s imagine a nice, happy 30-ish couple, Zakk and Ella. They’re both gainfully employed and doing well for themselves, though their incomes are a little mismatched. After stints tending bar and running a coffee shop, Zakk finally followed his calling two years ago and became an art teacher at Ridgemont High.
He earns $60,000. Meanwhile, Ella has been working continuously for 10 years as a software developer with a growing tech company. After raises most years, she now earns $90,000.
Ella is the higher earner. After paying off debt and expenses, she contributes $12,000 to a Spousal RRSP for her husband, Zakk.
Ella deducts the RRSP contribution from her income and that $12,000 contribution reduces her personal annual RRSP contribution limit. That would help her get a tax refund, or at least lower the taxes that she pays that year.
In this case, because Zakk is the lower-income spouse, he is the person authorized to withdraw the funds from the RRSP. However, there is a little bit of a complication…
If you want to take out that money to use it, here comes the tax man! How do you deal with that?

How withdrawals from Spousal RRSPs get taxed

Zakk wants to make a withdrawal from the Spousal RRSP. Let’s say that his withdrawal is equal to or less than contributions Ella made in the year of withdrawal or two preceding calendar years.
In that case, the CRA will tax the withdrawal amount back to the contributor, Ella. But Zakk won’t get taxed, even though (as the lower-income spouse) he is the official holder of the Spousal RRSP (probably the lower-income spouse).
Let’s take a different case: Zakk wants to make a withdrawal from the Spousal RRSP, but Ella hasn’t made a contribution that year or in the preceding two years. In that case, he’ll be taxed on that income.
There are exceptions where the spousal attribution rule wouldn’t apply, such as if Ella died the year the funds were being withdrawn. It also wouldn’t apply if Zakk and Ella became non-residents. There are a few other technical exceptions, so if you're using this strategy, best to chat with your advisor.
Now, Spousal RRSPs aren’t the be-all, end-all of income splitting strategies. There is also…

Pension Income Splitting

You can transfer up to 50 percent of eligible pension income to your spouse. However, there’s a catch.
Eligible pension income is different when you’re under 65 than when you’re over 65. Here’s how:
Before 65, pension income splitting is limited to:

Lifetime annuity payments from a registered pension plan (eg. monthly payments from a private pension)
Certain death benefits

65 and over, pension income splitting includes:
The same stuff as above, plus payments from:

RRIF
Deferred Profit Sharing Program (DPSP)

For most Canadians, this up-to 50 percent splitting is usually enough to split couples’ retirement incomes to maximum efficiency. But maybe one spouse’s income is so high that there is still a gap? Well, there are other strategies…

Splitting your CPP

Splitting your CPP is not terribly common (we’ll explain why, below) but here’s an example of how it could work.
Let’s go back to the case of Zakk and Ella (many years later). When Ella took time off to raise their children (and even after she went back to work part-time), Zakk became the higher income earner. Now that he is retired, he is entitled to about $12,000 a year from CPP. Ella didn’t contribute as much and now is expecting only $6,000 a year from CPP. By sharing CPP credits, Zakk and Ella could lower their total tax bill.
We’re including this just to be comprehensive… but just to be clear, while it might work for Zakk and Ella, for many Canadians, this might not be worth the trouble. Your maximum CPP payment might only be around $1,100 a month, each. The tax savings on that income could be meagre. But hey, if you’re on a limited income in retirement, every dollar counts.

Tax-Free Savings Account (TFSA)

While this is not specifically an account that couples could use directly for income splitting, the TFSA can be part of anyone’s comprehensive retirement income strategy. And certainly, in cases where there is a big disparity of incomes, it may be better to draw income from this in retirement, instead of paying tax on drawn income from other types of accounts.
You can gift money to your spouse or common-law partner , who would then put it into their TFSA account. (You can’t ordinarily directly contribute the money into their account – but if it’s coming from a joint bank account, it won’t matter).
There are no tax consequences to withdrawing that money… so, make sure it’s at least considered for your overall long-term strategy. Reposted with permission from CI Direct Investing.

Source: Charts are sourced to https://www.thelinkbetween.ca/
The contents of this publication were researched, written and produced by The Link Between (https://www.thelinkbetween.ca/) and are used by Echelon Wealth Partners Inc. for information purposes only.
Disclaimers
Echelon Wealth Partners Inc.
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Echelon Wealth Partners Inc. or its affiliates. Assumptions, opinions and estimates constitute the author's judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them.

American Exceptionalism

website@sitemodify.com (Website Editor) — Mon, 12 Feb 2024 16:35:00 GMT

Over the past month or so, the economic data from America has certainly turned up somewhat. A strong Q4 GDP print of 3.1%, two back-to-back months of 300k+ job gains, and even manufacturing activity has ticked higher. So, where is this recession that has been the talk of the town for the past year or even longer? It appears to be almost everywhere else. Maybe not outright recession, but certainly weakness. The latest GDP readings are negative in the UK, Canada, Germany and Japan, leaving only two of the G7 members with positive economic growth.

Much of this divergence can be explained by two factors: economic sensitivity to interest rates and global trade. Countries that are more sensitive to rates and global trade are doing worse; those less exposed are doing better.
As we all know, rates/yields have moved substantially higher over the past couple of years, yet that impacts different parts of the economy differently. Based on different economic compositions from one country to the next, rate changes can hurt more or less. The U.S., for instance, is less sensitive to rates given the structure of their mortgage market. Dominated by 30-year fixed mortgages, changes in rates don’t impact consumers’ mortgage payments as much. It is estimated the U.S. has less than 10% of mortgages set to variable rates, compared to 30% in Canada. Furthermore, fixed mortgages in Canada max out at 5 years, meaning the resetting of higher payments is increasingly being felt as mortgages are renewed.

While encouraged, our view on manufacturing is tempered. Manufacturing activity exploded during the pandemic as we all wanted more goods. As the pandemic diminished, consumers returned to more normal spending patterns. So, that spike in 2021/22 was followed by a dearth in 2023. Global spending growth does appear to be slowing, likely a result of higher rates.
Wait for it, but we could be getting close to a period when good economic news stops being suitable for markets. This incredible run over the past three months has seen the S&P 500 rise 14 of the past 15 weeks – a feat not repeated since the early 1970s. The initial rise was from an oversold market that started celebrating more evidence that inflation was coming down, opening the door for rate cuts this year. This traversed from inflation optimism to optimism about U.S. economic strength. Unfortunately, strong economic growth does not give with rate cuts nor with inflation making a speedy decline down to the magic 2% realm.

Final Thoughts

The U.S. is the biggest economy in the world, and its equity market now carries about a 70% weight in the MSCI World Index. Yes, if you buy a passive cap-weighted global equity ETF, it's really just the S&P 500 plus some odds and sods. The U.S. economy could certainly remain immune to slowing growth elsewhere. Maybe the stock market can keep climbing with earnings growth slowing. However, the biggest constant for both markets and economies is often reversion to the mean. And both are well above their means at the moment.

— Craig Basinger is the Chief Market Strategist at Purpose Investments

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.

Love and Money

website@sitemodify.com (Website Editor) — Thu, 08 Feb 2024 14:45:00 GMT

Ah love… it’s a beautiful thing, but sometimes finances and money worries can get in the way. In fact, 84% of respondents in a Money Magazine survey said that money was the source of marital tensions with disagreements about financial priorities topping the list of problems (1). So, how should one manage money and love?
Here are a few insights to help you keep those love lights burning and your pocketbooks full without the added strain.

Communicate

The world of finances can be complex – TFSAs, RRSPs, RESPs, registered vs. non-registered – it’s a lot and it’s easy to get lost in those day-to-day decisions that shape your financial future. In most households, it’s common for there to be one person who is "in charge" or more involved in the family finances. And that is just fine, but too often this leads to a lack of communication, which is never a good thing. The outcome is that only the one person can answer critical questions like “what comes in every month vs. what needs to come out to support the lifestyle”, “which account types allow for a beneficiary”, “what are the tax consequences of withdrawals from different accounts” or “what happens if I pass away without a will”? Life is busy, but it’s important to set some time aside for an annual review with your partner to discuss the important financial matters that will set you up for success in the future!

Plan

Money matters can get intricate, so do yourself a solid and get expert advice. Consider working with a financial planner, one that will provide some clarity for your financial future. The earlier you and your partner are able to identify key financial priorities, the better! It really just depends on your needs and stage of life – are you preparing for your retirement, to purchase your first home, pay down debts, invest, send your kids to school? It’s a lot to consider, but a good start is to for you and your partner to each list your financial goals (separately), then work with a planning professional to identify the key goals to action now versus which can be deferred to another time.

Manage Risk

Much like a home, a financial plan requires a foundation – this is where risk management comes into play. You need to understand your financial risks and where your vulnerabilities lie. Imagine spending hours putting a solid plan into place, starting on your financial path, only to discover that you or your partner have a critical illness to confront or worse. It’s simply unimaginable, but you DO have to imagine it and then actively prepare for this situation with a contingency plan. There are a number of excellent financial vehicles to protect you from such unexpected risk!

Save

It goes without saying that you can accumulate wealth with systematic savings. That being said, it’s not always that simple. Take the time to educate yourself on how to save, where to save and when to save. Here are a few quick tips:
1. Identify your time horizon - when do you plan to use these funds?
2. Pay yourself first – don’t count on haphazard deposits to save; instead, put a systematic savings regime in place to get you to your goal! 3. Taxes – definitely something to keep in mind. What type of account best suits your savings goal?
4. Grants, bonds, and special benefits – there are many plans that can help you optimize your financial goals. For example, if you’re saving for your children's education, it's a good idea to invest in an RESP which provides "free" money in the form of contribution-matching up to a certain limit. Another example is if you’re buying a new home while looking to save for retirement; investing in an RRSP will allow you to access $35,000 via a first time homebuyer’s loan program. You have options!
Love and money – we need them both, but sometimes it’s difficult to keep them apart. We hope we’ve provided you with some useful tips here to avoid the strains of love and money – now go and give your loved one a hug!

References 1. CNN. Money? Sex? What couples are fighting about. CNN Money. n.d.

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.

Conflicting Forces

website@sitemodify.com (Website Editor) — Mon, 05 Feb 2024 16:27:00 GMT

In the heart of every market lies a fierce clash between bulls and bears, where optimism battles pessimism and greed contends with fear. Buyers and sellers engage, and their sheer will is one of the most important factors driving the markets. The market itself is a complex ecosystem with many players, but at the end of the day, it’s fear vs greed that is a fundamental aspect of market dynamics. For every transaction, there is a buyer and a seller. The bulls are greedy and optimistic about the future growth outlook. The only reason they are buyers is that they expect to sell at a higher price. In contrast, the bears are a dour bunch. They’d rather sell now and get back in at a cheaper price.
This battle reflects the constant struggle between optimism and pessimism. As investors, we all know it well. Driving these emotional swings are market fundamentals, economic indicators, and geopolitical events, just to name a few. It's an essential aspect of price discovery, but drives volatility and creates opportunities for investors. At any point in time, there will always be conflicting signals, either pushing markets higher or pulling them lower. Table 1 below summarizes just a few of these conflicting forces.

The dynamics of these forces, and which one is perceived as stronger, often create contrarian opportunities for investors. When market sentiment becomes excessively bullish or bearish, it may present opportunities to take the opposite stance and capitalize on potential market reversals. Embracing and effectively navigating conflicting signals can enhance investors' ability to achieve their financial goals in an ever-changing market environment. Unfortunately, reading the tea leaves is often more of an art than a science.
A clean slate
A week ago, the S&P 500 cracked through to a fresh record high. It took a total of 513 trading days to make the round trip. 195 days for the market to fall - 25.4% and bottom on October 12th, 2022, and 318 days to claw its way back to the previous high water mark struck just over two years ago. It then went on to set several higher highs in January. Despite the conflicting forces, the market has continued to run like a juggernaut. The historical precedents are promising. Forward returns are pretty decent on average after striking an all-time high, especially following such a long period between highs. Usually, once a new level has been hit, markets tend to cling to it. For those with cash on the sidelines waiting for a decent pullback, patience has not been a very profitable virtue. So, what do we expect next year:

The S&P/TSX Composite continues to lag but is a mere 4% away from its previous high set in early 2022. The NASDAQ, which continues to get most of the attention, rightfully so, thanks to its 53% rise from the depths of the 2022 selloff, is just 3% from its highs. Large-cap is winning over small once again; the Russell 2000 is still 20% below its 2021 peak. It would seem that there is a party in the market, but not everyone is invited.
Even the most ardent optimists have reason to be twitchy. Year-to-date attribution for the S&P 500 is quite thin and top-heavy. Most, if not all, of the heavy lifting is thanks to big names such as Nvidia, Microsoft, and Meta. The Magnificent 7 is getting culled, with members getting kicked out of the saloon. Tesla is down 26% YTD, Apple is negative and so is Alphabet following earnings.

The narrow breadth of a top-heavy market is not necessarily a problem. It is certainly not a brand-new phenomenon. But it does pose several challenges. We’re seeing concentration risk in action, and investors should be keenly aware of how quickly the positive tone can unravel.
Doves flying the coop At the close of 2023, bond yields eased, and equities had a broad-based rally. The overwhelming narrative is that peak rates are in the rearview mirror, and markets were looking forward to a cut. It still seems like markets got a little ahead of themselves with this excitement. We’re in the plateau period of a rate hiking cycle. The plateau can continue for some time and is usually when previous hikes catch up to the economy and wallets of consumers.
Currently, there is a 66% chance of a rate cut in May and an 87% chance in June. The market is in the process of severely dialling back and delaying the cut timeline. It’s changing by the day. At the beginning of the year, the market was pricing in an 84% chance of the first cut happening in March. The odds of a cut in March have been all but eliminated by the market. It was trending in that direction, but Powell’s post-FOMC conference all but eliminated that chance. The first cut will likely be in June. The chart below shows the doves taking hold of the market from October to December but losing control at the turn of the year, with rate-cut expectations being pushed further ahead.

Investors and analysts have been obsessed with guessing when and how many times the Federal Reserve would finally cut interest rates. All the guesses and market odds were largely wrong—and will probably continue to be. That doesn’t change the fact that these expectations have great power and have the ability to move the market.
Why cut when the economy seems to be doing better than expected, even with rates at current levels? For one, inflation does not seem to be a primary concern anymore; inflation swaps have fallen to nearly 2%. Inflation expectations are markedly lower than they were over the past few years. If the Fed were to keep rates where they are, in “real” terms it effectively means policy has continued to tighten the past few months. This isn’t necessary, as inflation is moving in the right direction. Politics, of course, also enter the conversation, with it being an election year in the U.S. Not to say anything about the Fed’s credibility, but we’re sure this enters the thought process. In their own words, rates are “sufficiently restrictive,” and a few rate cuts don’t mean they are afraid of a recession; it’s simply a return to what they view as a normal policy rate or R-star. They will, of course, carefully assess incoming data, the evolving outlook, and the balance of risks.
Expectations for the Bank of Canada are similar. They will remain quite restrictive for much of this year. Following the Fed is likely, but perhaps a few months delayed if inflation pressures ease as expected. Should the economy continue to slow, the cuts would be pushed ahead. Cuts, in this instance, would not be good if it were due to signs of economic distress.
From our perspective, the greatest peril right now is the assumption of a seamless transition or perfect landing factoring into market valuations. The markets have sailed full speed ahead; however, they might not have charted the waters for anything but smooth sailing. The data decidedly remains mixed; there are green shoots and darkening clouds. Markets remain focused on the positive for now. Even the credit market has seen spreads setting new lows at the end of January. The bond market is near sanguine, with the lowest credit spreads since the last time the S&P 500 made new highs.
However, our base case still points to a probable recession in 2024. If we put our Bayesian thinking caps on, the probability of this outcome is fluid and shifts as new information becomes available. The Teflon consumer has, for now, resisted any lingering residue from higher rates to sap demand. The economy can change quickly, as we’ve seen many times in the past. Below, we delve into the current earnings season to assess trends and what they mean for investors.

Earnings – paying up for poorer quality

Paying up for poorer earnings doesn’t seem like the optimal investment strategy. Regardless, that’s what investors are doing at the moment. Valuations for the S&P 500 are quite elevated. Looking back in history, valuations have been higher a few select times. But we’re talking about the highest valuations in the last 20 years, except for the post-COVID period, where earnings were still depressed, rates were at rock bottom, and QE was flowing like Niagara Falls.
At present, just under half of members of the S&P 500 have reported quarterly results. Including all of the Mag 7, which, by and large, posted broadly strong, but not blow-out results across the board like some of the stock prices would have suggested.
At this stage in the earnings season, the overall performance of the market continues to be sub-par. 230 companies have reported 4Q results. Reported sales growth has been +3.4% and earnings +4.0%. Despite the slow growth, we continue to see positive surprises generally across the board. Price action is arguably more important than actual stated results, and despite a +7.1% aggregate earnings surprise, the average 1-day price movement is just 0.1%. Suffice it to say that, on average, the market has not been rewarding the beats, but it has been punishing those who have missed.
Eight of the eleven sectors are reporting earnings growth, led by Communication Services, Utilities, Consumer Discretionary and Technology. Energy, Materials, and Health Care are thus far reporting fairly significant earnings declines. Looking ahead, analysts are calling for earning growth of 9.6% in 2024 and a whopping 13.0% in 2025. Headline EPS estimates for 2024 are, however, trending lower, down nearly a percent over the past few months. The abrupt shift in the 3M revision a few months ago conflicts with a massive surge in stock prices to close out 2023.

Markets didn’t take well to some of the big misses, including Microsoft and Google. Add in Powell’s unclear messaging during the FOMC conference, and markets saw a sharp reversal to close out January. Though analysts remain rather optimistic, they continue to dial it back. It appears falling inflation might be good for rates but not for earnings.
Broad themes & guidance
Recession fear has receded, and mentions of the dreaded ‘R’ word have been falling for the past few quarters. Another clear trend is the lack of mentions of inflation and interest rates. We’re seeing some lingering concern regarding commercial real estate, notably from some U.S. regional banks. Pandemic darlings continue to struggle (anyone interested in buying another spin bike for their basement?). One company in particular could really use the sale. Markets were looking for confirmation of sunnier times this earnings season, but, by and large, based on the guidance changes, companies on aggregate have missed the mark.
The number of S&P 500 companies issuing negative earnings per share guidance for the first quarter outnumbered those issuing positive guidance. In the chart below, we plot the trend of higher and lower guidance revisions over the past few years. With just 18% of companies guiding higher versus 38% guiding lower,˙ the ratio is now over 2-1, the highest we’ve seen over this period.

The Silent Winner

“Is Value Investing Dead?”... “The Demise of Value Investing”... “Value investing is struggling to remain relevant.” These are all headlines from the end of the decade after an incredibly strong period for growth stocks. Many would say that investors were happily dancing on the graves of value stocks as their portfolios climbed beyond their wildest beliefs. The media narrative has not changed much since the beginning of the new decade. Technology commentary continues to dominate the media headlines, and who is to blame them? The growth potential for A.I. is much more exciting to learn and read about than the fundamentals of Coca-Cola.
Investing in fundamentals has never been loud or exciting, but it has provided consistent returns over long periods of time. Over the last three years, we were aware that value was having a strong run, likely somewhere near growth equities, but growth was likely winning due to AI, tech dominance, chip shortage, etc. While the narrative in the media may not have changed, the shift from growth to value has already begun. When discovering it was strongly opposite to what we believed, we decided to survey 31 financial professionals who deal with high-net-worth families throughout Canada. Our thesis was correct; even though value has dominated the three-year period, a majority (71%) of financial professionals believe growth has been the stronger factor.

This is to no fault of the investor; there are many behavioural biases at play here, with the most dominant one being the ‘availability bias,’ also known as ‘recency bias.’ Our recent encounters with investing, especially over the past decade, and exposure to media content have heavily leaned towards discussions of growth. This has left the door wide open for value investors to quietly outperform. Given the inherent biases in investing, it is crucial to remain steadfast in your convictions and resist anchoring to media-driven narratives.
While the three-year view looks very strong for value (S&P 500 Value +44% vs S&P 500 Growth +21%), in two out of the three calendar years below, growth has outperformed value. Not by as much as you might think, but growth did outperform. 2022, the year rate hikes began, was a big reason for the outperformance over the period, with value outperforming growth by 24% (S&P 500 Value -5% vs S&P 500 Growth -29%). But that is what value is meant to do; when you get this larger pullback in the market, your blue-chip value stocks should hold up better. Lucky for us, calendar years are arbitrary; as long-term investors, we are focused on exactly that – the long-term – and this type of portfolio construction is proving to be beneficial given the current market environment.

For much of the current decade, we have been consistently overweight value, most notably in the realm of US equities. While the positioning has been successful thus far, the primary focus should be on what will happen in the future. There are a few key reasons that lead us to believe there will be continued outperformance of value.
Sustainability
The sustainability factor comes down to good old-fashioned diversification. Unsurprisingly, approximately 90% of the return for the growth index throughout these three years can be attributed to one sector: Technology. Flipping over the value index, to achieve the same 90% coverage for return, you must include the top seven performing sectors of the index. While there are certainly differing opinions in the investing world, there is likely a preference for investment growth to be diversified amongst seven sectors rather than depending solely on a single one. This type of investment growth does not feel particularly sustainable over the long run.
Valuations
Simply put, the US growth index is expensive, and as we learned in the last Market Ethos ( Do Valuations Matter? ), the more expensive the index, the lower the forward returns have been historically. The growth premium has made its way back to nosebleed levels last seen in 2021. While the markets did move much higher throughout Q4 of 2023, mainly due to multiple expansions, price does not entirely explain the quick shift in valuations that we saw at the end of December. The more impactful explanation for the return of the growth premium comes down to forward earnings estimates. The earnings estimates for growth companies in the S&P 500 pulled back while the forward earnings estimates for value in the S&P 500 strengthened. Therefore, a significant amount of the P/E growth premium climbing has to do with the “E” moving in opposite directions for both styles. We expect that trend to continue as some of the earnings estimates for the growth companies were/are certainly extended.

Higher inflation & rates
While the current inflation level has come back down, our view is that it will continue to flare up through the cycle and, on average, remain at higher levels than the last cycle. Looking back over the last 48 years, this has proved positive for the value factor. There was roughly the same number of periods when US CPI was greater than 3% as there was when CPI was less than 3%. Separating those two periods, value stocks outperformed on an average monthly basis by +25 bps in periods where US CPI was greater than 3%. The opposite can be said for periods where US CPI was less than 3%; growth outperformed value by +23 bps. During a period of rate cuts, we can expect growth to outperform value. However, if inflation proves more volatile over the long term, so will the rate environment, meaning we may not be going back to the depths of interest rates. A more consistently elevated rate environment should prove to be a boon for value.

Recognizing new cycles early on is crucial for maximizing future returns. After a decade of underperformance in value, the time for value investors may have arrived. While the U.S. equity market has distinct value and growth factors, other markets, such as the TSX and international markets, appear value-heavy based on current valuations. This forms the basis for our underweight position in the growth-heavy U.S. market, market-weight in Canada, and overweight in international equities.
While we acknowledge the possibility of mixed performance between value and growth for the remainder of 2024, our preference leans towards value, aligning with our forward-looking strategy. Our stance doesn't imply a complete dismissal of the growth factor. We remain cautious about potential challenges, such as a recession, where growth may exhibit some resilience. However, our focus is on anticipating future trends, and currently, that points towards a value-oriented approach. Spread the word – value is on the rise, and we aim to keep this momentum for the dedicated value investor.

Portfolio Positioning

We continue to hold a portfolio position that we would characterize as moderately defensive. Bit of an overweight in cash, not lured by the attractive yield, but more so for optionality. Our expectation for equities is tepid. The market is currently pricing in a rather goldilocks scenario of a soft or no landing for the global economy with a potential lift from rate cuts. We don’t think it will go that smoothly and have extra cash to buy on weakness. In the meantime, we are getting paid a decent amount to park.
On the bond side, we are moderately overweight. The current yield is attractive, and most bonds remain trading at a discount to par, which should equate to a bit more upside as they gradually move closer to maturity. And since our base case is for economic weakness internationally to spread to North America, we do believe yields will grind lower, even after the decent drop since publishing our outlook in early December. From a duration perspective, we are just over 5. This is about the highest duration we have had since starting to manage multi-asset portfolios in 2015. Our credit exposure is light, as we believe spreads are not providing much of a safety buffer in case the economy does weaken and defaults rise.

On the equity side, we do remain moderately underweight in U.S. equities, which has not been the right call for the past year. However, offsetting this has been an overweight international with an emphasis on Japan. Japan is quickly becoming the talk of the town based on reports and articles; we were there over a year ago. We continue to be underweight emerging markets which has been a positive tilt for the portfolio, however, we have recently become a bit more intrigued.
Market cycle indicators remain stable on the lower side of healthy or neutral. We can never know fully what the future holds, but certainly down here does warrant a bit more defense.
Sticking with the party terminology, we are at the party, standing near the door, sipping a light beer.

The Final Word

The market's ongoing battle between optimism and pessimism, represented by bulls and bears, remains a driving force in the financial world. Investors navigate conflicting signals, concentration risks, and the recent shift in interest rate expectations, all within a market that, while hitting record highs, potentially overlooking forthcoming challenges. As uncertainties persist, staying vigilant, agile, and open to contrarian opportunities becomes paramount. The delicate balance between fear and greed continues to shape the market's trajectory, highlighting the need for investors to adapt to the ever-evolving landscape.

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Greg Taylor and Derek Benedet Purpose Investments Inc.

Do Valuations Matter?

website@sitemodify.com (Website Editor) — Tue, 30 Jan 2024 18:48:00 GMT

One could certainly question the importance of valuations in this market. If you were bold enough to buy Nvidia a year ago, ignoring the 60x price-to-earnings (forward earnings), you made money. Microsoft, too, sits at 33x and continues to go up even though its forecast earnings growth is only about 15%. Or which pharmaceutical company would you like to own, the one trading at 50x earnings or 12x? Surprisingly, the right answer was the 50x Lily and not the 12x Pfizer. Solving for a pandemic is nice, but solving for fat is much more lucrative.
For the S&P 500, the quartile of companies that were trading with the lowest valuation at the start of 2023 enjoyed an average return of 8.9%. Not bad. But the companies with the highest valuations returned 17.7%. It's not just within U.S. equities that it may appear valuation doesn’t matter. Emerging markets have been trading at very low valuations for years and have consistently lagged developed markets. Based on the Bloomberg Developed (DM) and Emerging (EM) markets indices, the spread is wide at about 18x vs 12x. Also of interest is that EM earnings are expected to grow at 28% compared to 18% in DM over the next couple of years. Or the TSX at 14x compared to 20x for the S&P, a long-standing valuation spread, yet the more expensive S&P keeps winning.

Now, comparing one market's valuations to another is like comparing apples and oranges. The composition of the market and different sector weights can often explain much divergence in valuations. For instance, the S&P currently has a 30% weight in technology, often a higher multiple sector. That compares to under 10% for the TSX. The S&P has more consumer staples, more health care, less energy, and less financials compared to the TSX. Staples and health typically carry higher valuations than the more cyclical energy and financials.
Yet valuations do matter. The chart below uses S&P 500 data back to 1950 and calculates the average performance for the S&P 500 based on starting point valuations. It is rather clear that higher valuations equate to lower returns going forward, on average. And that is the crux: averages can hide a lot of data. Sure, the average return from a starting point in the most expensive quartile bucket is rather close to zero, yet the one-year return ranges from +39% to -38%. That is rather wide. The 3-year return ranges from -17% to +18%. So, even though valuations are high, anything can happen.

Worth noting, the range of performance outcomes when the starting point is cheap (less than 11.4x), are rather compelling. The 3-year annualized worse case was flat, and the best case was +26%. Today, though, we are not in the bargain basement; we are in the valuation luxury penthouse.
Pushing the S&P 500 up to the penthouse of valuations is the Mag 7 or Enormous 8, or whichever funny label you prefer for the megacaps sitting atop the index. The concentration in the S&P 500 is at or near historically high levels, which is also pushing the valuation to the upper levels. To give an idea, the chart below shows the relative valuations of the S&P 500 (traditional market capitalization-weighted version) and the Equal Weight S&P 500 index. It is those megacaps making the S&P 500 expensive; the broader market is not nearly as elevated.

Final Thoughts

The Enormous 8 could very easily become more enormous in 2024, which would once again drive the most expensive part of the market higher. The average PE across the Enormous 8 is currently 36x forward earnings, but as we learned in 2023, a high starting valuation doesn’t guarantee anything as, in the short term, anything is possible. However, given concentration and given valuations, the odds are likely tilted in the other direction. Don’t lose sight of valuations; in the long run, they are one of the best indicators of performance and can offer a margin of safety.

— Craig Basinger is the Chief Market Strategist at Purpose Investments

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.

Your 101 on How Canadians Are Taxed

website@sitemodify.com (Website Editor) — Tue, 30 Jan 2024 17:27:00 GMT

The time to file your 2023 personal income tax return is just around the corner. Need a reminder about how Canadians are taxed? Read on... Individuals who reside in Canada are taxed on the worldwide income they receive in the calendar year. There is a federal layer of tax and a provincial layer of tax. The tax rate you pay depends on the amount of taxable income you received in the calendar year and the tax brackets you fall into. The 2023 Federal tax brackets are shown in the table below (which are indexed each year for inflation). Each province also has its own tax brackets and rates.

As you can see, the rate you pay will be a blended rate depending on your taxable income for the year. You pay Federal tax at 15% on the first $53,359, then the rate increases to 20.50% for income above $53,359, etc. Once your income is over $235,676, then every dollar after that will be at the 33% Federal tax rate. With provincial taxes added on, the top combined income tax rate ranges from 44.50% in Nunavut to 54.80% in Newfoundland and Labrador. Check out these links for the combined Federal and Provincial tax rates for the province in which you reside: E&Y (rates and a personal tax calculator) and KPMG (tax rates and brackets). There is an alternative minimum tax (AMT) that could apply if you have certain preference items. A taxpayer pays the higher of AMT and regular income tax. There are changes to the AMT for 2024, outlined in this article Alternative Minimum Tax Changes – What You Need to Know .
Some types of income are more tax efficient than others. If you earn capital gains, only 50% of the gain will be included in your taxable income, while your employment and investment income will be fully taxed. Withdrawals from your RRSP or RRIF are also fully taxable. Dividends receive preferential tax treatment through the use of the dividend gross-up and tax credit. There are two types of dividends: eligible and non-eligible dividends. Non-eligible dividends are taxed at a higher rate than eligible dividends. Usually, dividends you receive in your investment portfolio would be eligible dividends (dividends from publicly traded securities). While preparing your 2023 tax return, review the types of income you earned and evaluate if you should make a change to the types of income you are receiving. However, don’t let the taxation of the income be the only reason for changing an investment. Talk to an Advisor to help match your income to your planning goals.
Certain expenditures are deductible from your income and there are also tax credits available that can reduce your tax liability. The CRA’s website has a page that describes the deductions and tax credits that are available. To be applied to your tax return, the expenses must have been incurred by December 31 of the tax year in question (except for RRSP contributions which can be made 60 days after year end and still reduce the prior year tax liability - so for the 2023 tax year, RRSP contributions can be made up to February 29, 2024). For employees, there are less deductions than for those who are self-employed. The most common deductions are for RRSP contributions, childcare expenses, capital losses and investment related expenses. New for 2023 is the first home savings account (FHSA). The contribution limit for this account is $8,000 and is tax deductible. For more information on how this account works, consult CRA’s First Home Savings Account page . The most common credits are for medical expenses, charitable donations and tuition fees. Of course, there are also ways to save taxes on income in the long-term by investing in a tax-free savings account (TFSA) or registered education savings plan (RESP), for example. While contributions to these types of plans don’t result in a deduction on your tax return, the income earned in the plans are not taxable while in the plan. For TFSA, there is no tax to you on withdrawal. For RESP, the funds are taxed in the hands of the student. The TFSA contribution limit for 2024 is $7,000. If you have not made a TFSA contribution in the past, the contribution room carries forward. For example, if you were 18 years or older in 2009 and have never contributed to a TFSA, you could contribute $95,000 to a TFSA in 2024. For more information on how TFSAs work, read How to Use a TFSA to Get Better Investing Results and for more information RESPs, check out Getting the Most from Your RESP , SMART TALK… about registered education savings plans (RESPs) and this Start Education Planning Now calculator .
Now is also an opportune time to review your overall financial and estate plan which would include your wills, power of attorney and representation agreements, life insurance needs as well as critical illness and disability insurance.
Contact us to learn more or if you have any questions.

Source: Charts are sourced to https://www.thelinkbetween.ca/

The contents of this publication were researched, written and produced by The Link Between (https://www.thelinkbetween.ca/) and are used by Echelon Wealth Partners Inc. for information purposes only.

Disclaimers
Echelon Wealth Partners Inc.
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Echelon Wealth Partners Inc. or its affiliates. Assumptions, opinions and estimates constitute the author's judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them.

The ABCs of Spousal RRSPs

website@sitemodify.com (Website Editor) — Tue, 30 Jan 2024 17:22:00 GMT

A spousal* RRSP is exactly what it appears to be , quite simply a Registered Retirement Savings Plan (RRSP) for a spouse; a plan that cannot only help set aside funds for you and your spouses’ retirement, but can save you some tax dollars in the process. The idea is that one person, typically the higher earner, contributes money to the spousal plan on behalf of their spouse. The primary benefit is that a contribution can be made each year and the receiving spouse will see a tax- free return until those assets are withdrawn. A spousal RRSP is typically utilized when one spouse has significantly more money in their RRSP than the other. By splitting the invested amount between an RRSP and a spousal RRSP, both of you can enjoy retirement dollars and pay less tax overall by withdrawing the funds when you are both in a lower tax bracket.
Let’s see how this works – Assume you earn $100,000 and your spouse earns $50,000. With RRSP contribution limits of 18%, you can deposit $18,000 and your spouse can deposit $9,000 to your respective RRSPs. However, if using a spousal account, you can deposit, let’s say, $13,000 to your own account and $5,000 to the spousal account. Your total contribution is still $18,000, but divided over two accounts, allowing you to split the income with your spouse. Your spouse can still deposit their original $9,000 into their account. The scenario becomes quite different without a spousal RRSP: let’s imagine that you have $1 million upon retirement and your spouse has $400,000 at this same time. A standard 5% withdrawal rate would result in taxable income of $50,000 for you and $20,000 for your spouse, with your $50,000 annual withdrawal taxed at a higher rate. If a spousal RRSP had been set up, both accounts could have accumulated $700,000 each (same total amount) and taken out an annual income of $35,000 per spouse, resulting in tax at a lower rate. A spousal RRSP can also be used to save on taxes if one member of the couple is over 71 years of age but the other is not. When a spousal RRSP is opened, contributions can be made on behalf of the spouse who is not over 71 - and claim the income deduction on that deposit. In addition, spousal RRSP payments can still be made in the year of death.
It is worth noting that contributions to a spousal RRSP must remain in the fund for three calendar years from the year they are contributed or else the withdrawal amount will be added to your net income for that year and taxes will have to be paid at your tax rate.
*spouse includes a common-law partner The contents of this publication were researched, written and produced by The Link Between ( https://www.thelinkbetween.ca/ ) and are used by Echelon Wealth Partners Inc. for information purposes only

How Much Do You Need to Retire?

website@sitemodify.com (Website Editor) — Tue, 30 Jan 2024 17:15:00 GMT

Worried about retirement? Specifically about the cost of retirement and whether you will have enough money? If so, you’re not alone. According to recent surveys, over 60 percent of Canadians are concerned about being able to live comfortably in retirement. ¹ Worrying Too Much?
Some studies have shown that perhaps we worry too much about our funds in retirement. One expert estimated that a couple could live on around $44,000 per year. ² Government safety nets could supplement this amount if personal assets were exhausted. Many of us would dispute this assessment, as most would like retirement to go beyond subsistence! If you are fortunate enough to have a defined benefit pension plan at work, you will have at least some idea of your retirement income. However, the world continues to change and defined benefit pension plans have become increasingly rare. Registered Retirement Savings Plans (RRSPs) are the other major component of retirement savings for many Canadians. They are often converted to a Registered Retirement Income Fund (RRIF) to provide taxable income. How much can a RRIF provide? For those who are regimented in contributing, the RRIF may play a substantial role. The table shows the payments that would be received based on the current minimum withdrawal requirements for a plan value of $300,000 at age 70. Assuming a five percent annual return on investments, changes in the RRIF value are also shown. For those worried about outliving assets, the numbers may provide some comfort. At age 90, 60 percent of the original asset value is still available, and this doesn’t consider other sources of retirement income that may be available.

How Much Can the RRIF Provide?
Example: Payments Received Based on Minimum Withdrawal Requirements for Plan Value of $300,000 at Age 70 Assumes Five Percent Compounded Annual Return

Need More Income?
The RRIF is flexible in the amount of income you can draw, so some may withdraw more than the minimum when needed. The Tax-Free Savings Plan has also become a significant investment vehicle that can help to fund retirement. And in many cases, people do not stop working at age 65. While they may leave lifelong jobs, they may end up doing something else that is productive (and perhaps even profitable!). For those concerned about longevity risk, the Canada Pension Plan (CPP) has the potential for greater payouts if payments are deferred to the age of 70. The current maximum annual benefit is $16,375.203 for an individual who starts payments at age 65, but this rises by 42 percent at age 70. Yet, fewer than one percent of retirees delay CPP until age 70, despite studies that show it to be one of the more financially prudent decisions should you live beyond the average life expectancy of 82 years old. We Are Here to Assist One of our roles is to help clients prepare for a comfortable retirement. We can assist with worksheets and tools to project your requirements as you plan for the future. Start calculating your retirement potential today: My RazorPlan

1. https://benefitscanada.com/pensions/retirement/new-surveys-highlight-discrepancies-in-retirement-readiness/

2. https://www.thestar.com/business/personal-finance/do-you-want-a-budget-middle-class-or-deluxe-retirement-i-ve-calculated-exactly-what/article_7f9c740e-3828-5d13-a907-b2202c55b6ff.html ; 3. Based on maximum monthly payment amount at the start of 2024 of $1,364.60 Canada Pension Plan - How much could you receive - Canada.ca

Moody Market

website@sitemodify.com (Website Editor) — Mon, 22 Jan 2024 15:39:00 GMT

Markets certainly move around a lot. Last summer, the stock market rallied over a number of months into the end of July before going on a three-month decline due to rising bond yields. Then, from what were oversold levels, the market rallied for the last two months of the year. This put a cherry on top of 2023, which saw the S&P 500 gain 26% – a very impressive year.
So, where did those returns come from? The chart below decomposes the U.S. equity market performance into different components: dividends, earnings growth and multiple expansion/contraction. Of that 26% last year, 2.1% was thanks to dividends, 6.1% from earnings growth and the rest, 18.1%, was due to a rising market multiple. The price-to-earnings (PE) ratio for the S&P 500 rose from 16.8 to 19.7, about three points of multiple expansion. Hence, the red bar in 2023 is rather large, actually close to the same size in the opposite direction compared to 2022.

However, if you look longer term, the changing market valuation multiple quickly fades in importance and earnings growth becomes the key driver of performance, plus a bit from dividends. This makes sense as the market multiple fluctuates, given investor optimism or pessimism about everything from the economy, rates, profits, war, elections, etc. It fluctuates in both directions and clearly exhibits mean-reversion tendencies. Or, in simpler words, a PE of 20 does have a greater likelihood of declining than expanding in 2024… but of course, either direction is possible.
In 2024, there are a few things we can know with a decent amount of certainty. The total dividends paid by the index constituents do change over time, but usually very gradually. So, we are probably safe in expecting a little less than 2% returns from dividends in 2024. Earnings growth does tend to be more volatile and uncertain, but if we go with consensus bottom-up analyst predictions, that is 10-12% earnings growth. Add those two together, leaning on the lower end of the range for earnings growth totals about 12%. That sounds pretty darn good; of course, that implies a stable market multiple… in a metric that is anything but stable. How unstable? Well, the previous chart looked at annual return decomposition; the next one breaks it down to monthly performance. You can’t even see dividends anymore, and earnings growth is still there, but the changing market multiple dominates. Some months giving, some months taking.

If you can figure out where the market multiple is going next, ring us, and we will create a fund/ETF for you. It is really trying to gauge the mood of the market, or more specifically, the direction in which the mood is changing. From pessimism to optimism, you get multiple expansion. From optimist to pessimism, you get multiple contraction.

What will the market mood be next?

There are some fundamental drivers. Higher bond yields are historically associated with a lower market multiple. The chart below uses valuation data for the S&P 500 going back to the 1960s. While there are clearly outliers, there does appear to be a long-term relationship between bond yields and stock market valuations. This is logical; everything is a competing asset class, so if bonds are paying more, equities, to remain competitive, must offer more compelling valuations. The big red dot in the chart below marks “today,” which appears to have only slightly elevated valuations.

Yet, as we demonstrated from our monthly return decomposition chart, it is more about changing moods. In November and December, the vast majority of the market’s move higher was due to an improving mood among investors, given the multiple changes added over 10% of gains. Worth noting, during that period, bond yields, as measured by the 10-year Treasury, fell from 4.9% to 3.9%. So yields do matter a lot, but so do so many other things.
If we suddenly had peace in the world’s major current conflicts, we would probably lift the multiple. If inflation continues to decline, that would be good news. If the economic data weakens, it likely lowers the multiple. Then again, if the economic data weakens (bad), bond yields would likely fall more (good). All these things and many more are happening at the same time, making it rather challenging to guess the next directional move of the market multiple.
Not fundamentals but sentiment and positioning can provide some clues as to the more likely next move in the market multiple. For instance, if everyone is bearish due to lots of bad news, what happens next? Well, if everyone is bearish, then there is nobody left to move from being bullish to bearish, as they are all already there. So, the more likely next step would be for one of those bearish folks to become bullish. This is why sentiment is a contrarian indicator. You are supposed to buy when everyone is bearish and be a seller when all are bullish.
Gauging investor sentiment is challenging. One of the longest data sources is the AAII investor sentiment survey, which asks respondents whether they believe the stock market will be higher or lower in the next year. When this is near an extreme level, either overly bullish or overly bearish, there is, on average, a strong determinant of stock market performance. When very bearish, the average future performance is well above average, and when everyone is bullish, future performance tends to be lower than usual.

While far from perfect, when the bulls vastly outnumber the bears (above the red line), the S&P 500 has typically seen weakness ahead. When most are bearish, the future returns are much better. So, while the S&P 500 may be somewhat euphoric, trading up to over 4,800, sentiment certainly should cause investors some pause as to what may be coming next in the near term. In addition to this, valuations are certainly extended after the strong market returns of late 2023 and the lack of earnings improvement.
Despite investors being rather bullish (which is bearish), portfolio positioning doesn’t exactly match this. Using CFTC non-commercial futures positioning in S&P 500 futures contracts still has more betting the market will decline than rise. But just mildly below neutral. Future market returns tend to be more strongly positive when positioning is very negative. And vice versa. Today, there are a few more positioned bearish, based on e-mini S&P 500 futures. We would not characterize this as extreme, though, which certainly means the market could continue to improve, especially if more start placing positions on the bullish side. It is certainly something to keep an eye on. Worth noting small cap futures, based on the Russell 2000, are actually very bullishly positioned (which should be bearish).

Finally, there is momentum. Momentum measures of the market don’t differentiate between economic news, changing yields, changes in geopolitical risk, valuations or ever explain why the market is moving. But when momentum gets overly strong or overly weak, it usually mean reverts. As a result, extremes in momentum can also highlight good times to reduce and good times to put money to work when very low.

While this is only a few years, the table below does look similar over longer time periods. Simply put, the average forward return of the S&P 500 is much higher when RSI is low. And it is lower when RSI is higher. It’s worth noting RSI was well over 70 in late December.

Final Thoughts

We are big fans of long cycles, positioning based on return expectations, valuations, and where we are in the cycle. Again, earnings growth, which is determined by the economy, is the longer-term driver of market returns. But when you look at shorter periods, the importance of earnings growth fades, and the mood of the market dominates. Or more specifically, the changing market multiple caused by the changing mood of the market. Today, with RSI over 70 a few weeks back, investor sentiment is rather bullish. We would say the short-term risks are likely higher than the short-term potential gains. But you never know; the market is always moody.

— Craig Basinger is the Chief Market Strategist at Purpose Investments

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.

Are You Using Your RRSP to Its Fullest Potential?

website@sitemodify.com (Website Editor) — Tue, 16 Jan 2024 15:40:00 GMT

Registered Retirement Savings Plan (RRSP) season is here once again. Are you using the opportunities presented by the RRSP to their best benefit? Beyond fully contributing to the RRSP to maximize the tax-savings opportunity today and the potential for tax-deferred growth in the future, here are five other considerations:

Consider the timing of deductions and contributions. With any RRSP contribution, you’re entitled to a tax deduction for the amount contributed so long as it is within the contribution limit. Keep in mind that you don’t have to claim the tax deduction in the year that the RRSP contribution is made. You can carry it forward if you expect income to be higher in future years such that you may be put in a higher tax bracket, potentially generating greater tax savings for a future year. By making contributions at the beginning of the tax year or throughout the year instead of waiting until February 29th for a deduction for the previous year, you may benefit from the longer time period for tax-deferred growth.
Don’t overlook the benefits of a spousal RRSP — If you have a spouse (common-law partner) in a lower-tax bracket, contributing to a spousal RRSP can help build your spouse’s retirement nest egg and lower the amount of tax you pay collectively. When you contribute on behalf of your spouse, you will receive the tax deduction. If you are in a higher tax bracket, the tax benefit will be greater than if your spouse contributed to his/her own RRSP. There may also be a tax break, down the road, when your spouse withdraws funds and you remain in a higher tax bracket than your spouse. While there may be noteworthy income-splitting benefits to a spousal RRSP, keep in mind that the RRSP is intended to be a long-term retirement savings vehicle. As such, a withdrawal within three years of a contribution to a spousal RRSP may be included in your taxable income rather than your spouse’s. If you are working past age 71 and have a younger spouse, you can no longer hold your own RRSP after the year you turn 71 but you can still make a contribution to a spousal RRSP as long as your spouse is age 71 or less at year end and you have RRSP contribution room. This may be a good way to get a deduction and shift income to a spouse.
Consolidate multiple RRSP accounts. For many individuals, having multiple RRSP accounts isn’t uncommon. Scattered accounts can accumulate over time: you may have had an employer-sponsored account or opened a self-directed RRSP during different points of your life. However, there may be benefit in consolidation. One reason is to avoid having orphan accounts, such as a lost employer-sponsored account that is forgotten after a move of residence. Multiple accounts can also result in unnecessary complications such as failing to maintain a productive asset mix. Consolidation has the potential to improve performance, simplify administration and potentially reduce fees.
Don’t make unnecessary RRSP withdrawals. Consider the implications of making taxable withdrawals from the RRSP to pay down short-term debt. You may be paying more tax on the RRSP withdrawal than you’ll save in interest costs. In addition, once you make a withdrawal from the RRSP, you won’t be able to get back the valuable contribution room. There may be better options, such as withdrawing from a Tax-Free Savings Account (TFSA) — as contribution room resets itself in the following calendar year.
As you approach retirement, consider drawing down the RRSP and funding a TFSA. If you are approaching retirement, there may be benefit in gradually drawing down RRSP funds. This may be useful if an individual is currently in a lower tax bracket than they expect to be in future years. Other individuals may seek to limit future sources of taxable income in order to minimize the possible clawback of income-tested government programs such as Old Age Security. One strategy may be to use these RRSP withdrawals to fund TFSA contributions, assuming available contribution room. With the growth of investments in the TFSA, there may be greater flexibility in the future to receive TFSA withdrawals tax free as needed; by contrast, the RRSP would generally be converted to a Registered Retirement Income Fund (RRIF), which requires minimum annual amounts to be withdrawn and included in taxable income. At death, funds remaining in a TFSA can pass tax free to heirs, as opposed to residual RRSP or RRIF funds that are subject to tax, potentially at high marginal tax rates.

Reminder: The RRSP contribution deadline is February 29th, 2024, for the 2023 tax year. Contributions are limited to 18 percent of the previous year’s earned income, to a maximum of $30,780 (for the 2023 tax year). Don’t overlook the opportunity for tax-deferred growth!

Copyright remains with Advisor Marketing for these articles, but it is not necessary to acknowledge copyright when using these articles. The content is your use only, to support and promote your individual practice. No exclusivity is granted with regards to these articles or their use.

What is an RRSP and How Does it Work?

website@sitemodify.com (Website Editor) — Tue, 16 Jan 2024 15:30:00 GMT

Maybe you can’t drive stick shift. Maybe you don’t know the name of your local representative. Or maybe you’re still unclear on what, exactly, gluten actually is. We all have holes in our knowledge that we’re embarrassed to admit. If you still aren’t sure what an RRSP is, or how it actually works — don’t worry. Using an RRSP doesn’t have to be complicated or intimidating. In fact, once you break it down, they’re pretty straightforward. Even better? Learn how RRSPs work, open one, start contributing, and your future self will benefit. So grab a coffee refill and carve out ten minutes. Here’s what you need to know about RRSPs.
What is an RRSP? RRSP stands for Registered Retirement Savings Plan. An RRSP is an investment account you contribute to each year in order to build up long term savings, most often for retirement (as the name suggests).
How an RRSP works The most important way an RRSP differs from a regular (non-registered) account or a TFSA (Tax-Free Savings Account) is how it’s taxed. Your RRSP contributions are tax deductible. So, when you contribute to an RRSP, you pay less in income taxes than you would otherwise. And while the money is in the account, it grows tax free. Later, when you withdraw that money again — typically in retirement — you pay taxes on it as though it’s income.
Lifecycle of an RRSP Step 1: Earning money Chances are, you’re already completing this step. If you work for someone else, your employment income tax is taken off your paycheque automatically. If you work for yourself, you’ll pay those taxes either annually, or on a quarterly basis, depending on how much money you make.
Step 2: Opening an RRSP Once you open an RRSP, you’ll be ready to contribute assets. Think of your RRSP as a box you can put cash and different types of investments into. These can include publicly traded stocks, bonds, ETFs, mutual funds, or GICS — just about any financial product that holds value.
Because you’re almost certainly saving for the long-term, (retirement being the end-game), it’s wise to take advantage of the opportunity to grow the value of your account by investing the money in the account. Working with an advisor helps you choose appropriate investments and products that meet your unique needs.
Step 3: Contributing money Each year, you can contribute 18% of your previous year’s earned income, or the year’s maximum contribution rate, to your RRSP — whichever is less. For the 2023 tax year, the RRSP contribution limit is $30,780. Also, if you didn’t max out your contribution room in previous years, that amount carries forward to the present. To maximize your savings, consider setting up automatic contributions so the money is automatically taken out of your chequing account on a recurring basis.
Step 4: Using your RRSP money You have the option to withdraw money from your RRSP before you retire. Generally, we strongly advise against making early RRSP withdrawals because you’ll be hit with a tax liability — unless you plan to take advantage of the Home Buyer’s Plan or Lifelong Learner Plan. Even then, there may be better ways to get funding.
Step 5: Converting your RRSP to a RRIF Once you retire, the money in your RRSP becomes retirement income. To make these withdrawals, you’ll need to convert your account into a RRIF (Registered Retirement Income Fund). You have to do this by the end of the year that you turn 71, but you have the option to do so sooner. Any money you take out at this stage will be taxed as income when you withdraw it.
One Extra Step: Managing your estate When you pass away, your spouse can inherit your RRSP on a tax-deferred basis. If you don’t have a spouse, any beneficiaries you name receive it as cash but the value of the RRSP is subject to tax in your final tax return. If you haven’t named beneficiaries, it gets rolled into your estate and would be subject to probate fees so its important to name a beneficiary.
RRSP tax benefits You’ll see the benefits of contributing to your RRSP in the form of tax savings. When people talk about RRSP contributions being “tax-deferred,” they mean that you save on taxes now, and pay them later.
You can expect to save 30 to 40 cents on the dollar in tax when you make contributions to your RRSP. This RRSP tax savings calculator can help you determine the tax savings of an RRSP contribution — the exact amount depends on your marginal tax rate which is determined by income level and differs by province. When you withdraw that money in the future, you’ll pay taxes on it equivalent to your tax bracket at that time. Generally, you can expect your income in retirement to be lower, so you’ll pay less taxes.
RRSP vs. TFSA: Which is right for you? RRSPs and TFSAs (Tax-Free Savings Accounts) are both excellent options for long-term investing, and both offer tax advantages. Like the name suggests, the RRSP is typically going to be the best option if you’re investing specifically for retirement. That’s especially true if you’re in your peak earning years. With a TFSA, you don’t benefit from any income tax savings upfront, but when it comes time to withdraw the money from your account, you won’t pay any taxes, even on interest and investment growth. If you think your income will be higher in retirement than it is now, or if you want to ensure that the money’s available for any purpose, not locked away until retirement, then a TFSA might be your best bet. Check out our detailed comparison of TFSA vs. RRSP.
Spousal RRSPs If you’re married, you can set up a joint RRSP for you and your spouse. This can come with several benefits. If one of you earns more than the other, they can make a larger contribution and benefit from the tax break — while you’re both able to withdraw the money later. In that case, if the spouse with the lower income withdraws the money, it will be taxed at their tax rate. This maximizes savings for both spouses. However, there are some requirements you have to meet — such as making sure the spouse with the higher income doesn’t make a contribution the year before the withdrawal. The ABCs of Spousal RRSPs will help explain how you and your partner can make the most of a spousal RRSP.
The 2024 RRSP contribution deadline You have 60 days after the end of the year to make your RRSP contribution for the previous year. The deadline to contribute to your RRSP for the 2023 tax year is February 29, 2024.

The contents of this publication were researched, written and produced by The Link Between (https://www.thelinkbetween.ca/) and are used by Echelon Wealth Partners Inc. for information purposes only.

Maybe It Was Transitory After All

website@sitemodify.com (Website Editor) — Tue, 16 Jan 2024 15:00:00 GMT

The illusion of causality is a behavioural bias in which we believe there is a cause-and-effect relationship at work which just isn’t there. This bias is created because we humans love a simple causal relationship – rules make us feel like we understand the world better and are in control, to some degree. This bias is pretty prevalent in how people think about the markets and economy. Unfortunately, neither lends itself to simple cause and effect because both are such complex systems with countless moving parts. Those parts are the behaviours of all consumers, corporations, investors, governments, etc.; best of luck truly deciphering a simple cause and effect in such a dynamic, fluid system.
Rate hikes and inflation may be one of those illusions of causality that is pretty prevalent today among investors. The playbook is well known: Inflation is caused by too much demand compared to supply. To fight inflation, central banks raise overnight rates, which slows the economy or aggregate demand, alleviating said inflation.
So that is clearly what has happened, right? On the surface, it sure looks that way. We focus on America, but it is similar in most countries. Inflation started rising materially in 2021, central banks started raising rates in 2022, and inflation peaked around the middle of the same year. As inflation has been trending lower for over a year, central banks have now stopped raising rates and are now expected to cut rates this year.

The bonus has been the absence of a recession. Historically, rate hike cycles like this one have been followed by some sort of recession. So far, that has not shown up, emboldening the soft landing narrative, which appears firmly baked into the markets as we start 2024.
What if the consensus has it all wrong? Or, more specifically, the consensus has the causal illusion that rate hikes solved the inflation problem, and since no recession is evident yet, it all worked out perfectly. Rate hikes are supposed to lower or slow demand, sometimes called demand destruction, to alleviate inflation pressure. Don’t think we have seen much of that for a few reasons.

Counterproductive

On its own, higher interest rates slow down demand or economic activity. But there have been other factors at work here that are diametrically opposed. Fed raising rates slow economic activity, but the Fed injecting liquidity to backstop the regional bank failures in March of 2023 was a quantitative stimulus. Add to this, the draining of the Repo market over the past six months was stimulus. Add to this, the U.S. government is running a deficit that rivals the stimulative spending usually only seen during recessions. The U.S. is not the only government. It seems if governments spend a lot of money, in the recent case to provide support for the economy during a pandemic, they sure don’t rush to reduce spending back to normal afterwards. This also fits nicely with why no recession has started to show up.

It really explains why demand, measured by consumption and private investment, has remained pretty robust even with short-term rates rising from nearly zero to 5.5%. This measure of demand did slow a bit in 2022 but has largely turned back positive. You could say it is excess savings, government spending, and a splash of QE helping counteract the impact of higher rates. Clearly, trying to draw a simple cause and effect is challenging, given so many components in flux.

So why did inflation come back down from 6.5% to below 4%, and trending lower? It is clearly hard to argue that rate hikes have resulted in softer demand. Chances are it is on the other side of the ledger – supply. Capitalist economies work rather well. When there is not enough of something, people find a way to get it / make it and sell it. The pandemic messed with supply chains and changed our consumption behaviours. Ever since then, capacity has been expanding, relocating to better meet demand. The Fed’s rate hikes didn’t tame inflation – corporations did.
The chart below shows inflation lagged one year vs global supply chain pressure. Inflation peaked about a year after supply chain pressures peaked. Supply chain pressures have steadily improved and gone negative recently. Chances are prices will continue to follow.

We are not implying rate hikes had no impact on inflation. It is certainly a positive contributor to helping bring inflation down. However, other parts of the government have been operating in a counterproductive manner. And don’t underestimate profit-driven corporations for identifying and meeting demand in the marketplace.

Final Thoughts

It is challenging to try and draw causation in the economy or markets. Believing it has been the central banks that tamed inflation simply doesn’t add up when demand has remained robust. Likely it has been corporate capacity catching up with changing demand that has helped more so in bringing inflation lower. Dare we say inflation was transitory after all? Just maybe the time implied in being transitory was measured in years, not quarters or months.
This also should give some pause to the euphoric market view that cooling inflation will encourage central banks to start cutting rates. They will likely cut sometime in 2024, but there are many other moving parts. What happens when the Repo market is largely drained? Will QT be back on in full effect? The fiscal impulse from government spending is set to slow in 2024. Plus, don’t forget the impact of rate changes, which has large variable lagged impacts on the economy that are still percolating their way through. A lot of moving parts really make drawing causation challenging.

— Craig Basinger is the Chief Market Strategist at Purpose Investments

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.

60/40 - The Reports of My Death Are Greatly Exaggerated

website@sitemodify.com (Website Editor) — Mon, 08 Jan 2024 16:21:00 GMT

It was not that long ago, perhaps about a year at its peak frequency, that you couldn’t go far without coming across another report extolling the death of the plain vanilla 60/40 portfolio allocation. Time to rethink portfolio construction was the prevalent theme of the reports, often encouraging increased use of everything from commodities, market neutrals, CTAs, real assets, etc. The messaging resonated with investors, given their experiences of 2022 – a year in which that type of portfolio construction didn’t perform particularly well. But much like everything in the investment world, some strategies do better in some market environments and struggle in others.
We are not downplaying just how much portfolio construction using plain vanilla inputs sucked in 2022. The chart below is based on 73 years of calendar year returns for bonds and equities. That is a long time that encompasses many recessions, inflationary environments, wars, etc. 2022 wasn’t the worst year on aggregate, but it was the worst year for both equities and bonds falling. Now, our equity proxy is a 50% TSX and 50% global equity; this would look a bit worse if you used less TSX, given our equity market held up better in 2022. However, 2023 did end up returning much back to normal right in the middle of the cluster.

Adding to the frustration of 2022, your risk profile was largely meaningless. Given that stocks and bonds fell in similar fashion, it was a unique year in which your weightings across asset classes didn’t really have much of an impact on performance. Growth investors holding more equity and fewer bonds are generally more comfortable with market volatility as they see it as an acceptable by-product of greater return expectations over time. Yet Conservative investors are more comfortable sacrificing return expectations in return for less oscillation in the market value of their portfolio.
This is kind of key to portfolio construction and it did not work in 2022. The chart below is based on proxies for a Conservative, Balanced and Growth investor allocations using plain vanilla index returns. As you can see, in 2022, they all travelled together, from the young growth investor to the conservative grandparent. In 2023, asset allocation once again mattered. Dare we say back to “normal?”

One of the attributes of good investors is knowledge. Don’t worry, it doesn’t need to be knowledge of market cycles, the economy, corporate financial statements, manager selection, or portfolio construction; that is more of a team’s full-time job and why the majority of investors use advice. Don’t rush out to sign up for the CFA just yet. But a base understanding of how markets work and how your portfolio is allocated goes a long way. Sometimes, returns are scarce, sometimes abundant. Sometimes a portfolio’s construction will struggle in certain market environments and often bounces back in the subsequent. The balanced proxy from above returned about 12% in 2023. Knowledge helps keep investors calm and, most importantly, helps them avoid making knee-jerk reactions to market oscillations. Such as abandoning portfolio construction after 2022 to load up on commodities and CTAs [Bloomberg commodity index fell 8% in 2023 after gaining 16% in 2022, Barclay Hedge US Managed Futures, proxy of CTA managers, was down 1% in 2023 (end of November) after gaining 15% in 2022]
Asset allocation works and is still the best tool for constructing portfolios for various risk/return objectives. Sure, it doesn’t work all the time as expected, but markets rarely go as expected. The average annual return for global equities is about 11% over the past 70+ years. That is a long-term average. Care to guess how many of those years are within +/- 5% of that average. Or in other words, how many years are within +6% and +17%? About 30%, which means 70% of the time, equity returns were below 6% or over 17%.
2022, and to a certain degree 2021, were unique because of how things were set up beforehand and some pretty big macro drivers. The cost and availability of credit were reset from low cost and abundant to higher cost and less abundant. The cause is actually rather irrelevant; it was this changing dynamic that caused various asset classes to move together. The good news is that may be over. There will be reverberations that continue but it is safe to say capital now demands a certain return that is higher than before, and there does appear to be less capital to be accessible.
Understanding that when the risk-free rate (using overnight central bank rates as a proxy) moves very quickly from a really low level to, let’s say, a normal or slightly high level, the price of all assets tends to adjust together. However, rates can only go from 0.25% to 5.5% once. Now that things have “reset,” it has become a healthier market. It won’t be a pleasant journey to get there, and we may not be all the way there just yet, but it is certainly a key part of the foundation for the next cycle.

We Like Alternatives, We Just Like Plain Vanilla Asset Allocation as Well

The increased access to differen t asset classes, strategies, and vehicles is a trend that continues and gives investors many more choices. That is a positive and significantly expands the building blocks for portfolio construction. Volatility management, defensive strategies, income enhancers, real assets, privates, the list goes on and continues to expand.
In fact, we are increasingly inclined towards real assets as our longer-term view is that inflation will become a recurring market issue in the years to come, not just a threat to markets but to your financial plan. Privates also continue to gain traction as accessibility to capital changes. Diversification has become harder to find in an ever-increasingly connected world. The chart below shows the correlation and beta (measuring degree of move) between Canadian stocks and bonds. Periods when stocks and bonds move together are not uncommon; in fact, it has been more common than not over the past 70 years. Some of those periods, like during the 1990s, were a great time to invest. However, the positive correlation/beta does mean the diversification benefits of a simple asset mix may be a bit less effective. Alternative sources of diversification could certainly help.

But not so fast. The availability of different strategies in the traditional long-only (non-alternative) universe have also expanded considerably over the years. Certainly on the lower-cost side via the rise of passive ETFs, but also with different strategies developed to gain different performance exposures. Momentum strategies can be designed to produce a very different experience. Bond strategies can range from ultra-long duration government bonds to syndicated bank loans.
And let's not forget, even if the diversification benefit between stocks and bonds is lower today than in the past decade or so, there is a silver lining. Bonds have a yield again, meaning they are not simply for diversification anymore and can have a more pronounced positive performance contribution to the portfolio. The yield-to-worse for the U.S. Aggregate Bond index is 4.7%... getting that kind of return from your bonds means that equities don’t have to do all the heavy lifting.

Final Thoughts

The positive of having more tools in the portfolio construction toolbox is that it offers greater flexibility in how to build portfolios. Alternatives certainly offer some very different investment experiences to address either opportunities or risk that goes beyond just expected returns and volatility. And the more plain vanilla long-only investment options now offer exposures at ultra-low cost to active strategies that can be very different than the overall market.
It may feel like choice overload, yet the good news is there are many different paths that lead to a successful investment journey. Traditional asset allocation will likely remain the core for most, yet there are many ways to enhance a portfolio, given ever-increasing options. Alternatives, combining both active and passive vehicles, and being more tactical with allocations all can help.
Equally important to portfolio construction is portfolio understanding. Understanding the true exposures and how they will likely behave in different market environments is critical in avoiding making knee-jerk reaction mistakes. Or more directly, don’t make it too complicated. Simple may not be sexy, but when investing, it tends to work much better.

— Craig Basinger is the Chief Market Strategist at Purpose Investments

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.

2023 Year in Review

Tue, 02 Jan 2024 19:43:00 GMT

Let’s just say it – despite all the headlines, twists and surprises along the way, 2023 was a great year for investors. The S&P 500 was the star at +23% (all returns are total return in CAD). Not to be left behind, Japan was up +19%, Europe +18%. Of course, we can shed a tear for our home market, up only +12% but let’s not forget in 2022 the TSX suffered much less damage comparatively. When +12% has you trailing the pack, it has been a good year to be an investor.

It wasn’t just stocks, bonds went up too, ending two consecutive down years. The Canadian aggregate finished up +6.5% while the U.S. aggregate was up +3.1%. A strong Canadian dollar sapped a couple points of performance for U.S. denominated indices. Bonds were helped by inflation starting to subside, central banks hitting the pause button. Credit spreads also came down materially in the final weeks, driving even stronger returns in more credit tilted parts of the bond market.

Despite the end point of the year being rather favourable, it certainly wasn’t a straight smooth line. Here is a brief walk down the investing memory lane of 2023:
Strong start - To say that people were bearish to begin 2023 is a bit of an understatement. Central banks were still hiking, inflation was still a problem and investors were still licking their wounds from 2022. If you could encapsulate the general consensus, it was cautious on the U.S. market, recession calls were abundant and yields would come down. And as potentially an omen for the rest of the year, January turned out to be the 2nd best month of the year as markets rallied to start despite all the bearishness.
With hindsight, 2023 had a decent setup for returns. Investor sentiment was already bearish, which is a contrarian indicator. VIX was elevated, valuations were low or at least reasonable. This certainly does make 2024 look more challenging from a starting point.

Bank failures - The early gains to the year were all given back in February and March as a number of U.S. banks failed. With total assets in excess of $500 billion, First Republic, Silicon Valley and Signature became among the biggest bank failures in U.S. history. Of course there were many moving parts including deposits being pulled in search of higher yields in money market vehicles and excess capital being investing in bonds which were now sitting in unrealized loss positions. Quick action by money center banks to provide loans and the Fed opening up a bank stability mechanism helped stabilize the situation. Amazing what throwing a few billion dollars at a problem can solve, or at least mitigate.
Artificial intelligence – As markets recovered from the bank scare, hype around AI really started to fuel the market rise. Opening up of large language models has increased accessibility and exposure from largely coders to the masses. Now the race is on for firms to re-characterize revenue with an AI label, the familiar dance has begun. Still, the potential applications are considerable and largely unknown. It will be exciting.
Barbie & Swifties save the economy – Of course an exaggeration, but as the market advance entered the summer months the resilience of the economy was on full display. The recession talk that became louder during the bank failures was giving way to first a soft landing and then a no landing scenario.

Too much good news – All this good economic news helped global equity markets rally into the middle of summer, before the good news became bad for the markets. Bond yields were on the rise and when the 10-year U.S. Treasury yield moved firmly above 4%, equity markets began to suffer. Yields didn’t stop rising around 4%, they marched up to 5% due to better economic conditions and a very heavy government issuance schedule following debt ceiling dances.

This led to three consecutive down months, dragging global equities down a bit over 10% from the high at the end of July. As it was primarily rising yields that was the culprit this was especially painful for dividend paying companies. More on that later.
But Santa delivered – Once yields started to come back down, thanks to some softer economic data and cooling issuance of bonds, it was an “everything up” rally. Bonds moved higher, credit spreads fell, equities rocketed higher. Let’s call it the cherry on top of a great year. Inflation data continued to improve and central bankers backed off their rate hiking ways. They were certainly late to start hiking to combat inflation, next year we will learn if they were late to stop as well.
For North American equities, this rally into year end has been 100% multiple expansion. Earnings estimates for the S&P 500 have not turned up at all and have actually been coming down for the TSX. Globally, things are a bit better with some positive earnings revisions but nothing compared to the rally in the market.

Multiple expansion can be expected when yields come down, expectations for overnight rate cuts build and inflation becomes more tame. The challenge is multiple expansion is a zero some game in the long run, some periods it goes up and then some it comes down. The market will need more positive earnings momentum to backfill this market advance, or it remains at risk in 2024.

Year of Surprises

It is challenging trying to look back and determine what was most surprising during the year. Below we have highlighted a few contenders:
War - Rising geopolitical risk was certainly a surprise in 2023. Equally surprising was the muted response by markets.
Economic resilience – The global economy proved to be more resilient to higher rates than most had expected. One would not expect to see mortgage rates where they are today paired with record home prices (U.S. prices, little bit weaker here in Canada). Or a consumer spending steadily despite higher rates and inflation.
Markets – Remember the adage don’t fight the Fed? Well, since the Fed started raising rates in March of ’23, the S&P 500 has annualized 8%. Global equities xUS annualized at 6%. Perhaps the surprise of equity markets is greatest amongst those who attempt to forecast such things. The S&P 500 started 2023 at 3,840 and the average year-end target among strategists was a mere 4,078. Given the index finished at 4,770, that is a miss of about 700 points. Funnily enough, in 2022 they missed even more in the other direction with a year-end targe of 4,950, which turned out to be over 1,000 points too optimistic. By the way , the consensus for 2024 year-end is 4,830 or only 50 points higher than current levels.
Whoops – No denying the destination of the majority of new money coming into the market in 2023 landed in the ‘cash’ bucket. Maybe it was just bank deposits moving to a higher yielding vehicle, but there was a common theme of new money being diverted into cash products. The attractiveness of a 4-5% yield, with virtually no risk was appealing. “Getting paid to wait” was the common statement. As it turned out, you got paid a bit to watch other asset classes rise more.

Digging deeper into the numbers

Let’s start with the leader, America. The S&P 500 posted a 26% return but there are some interesting takeaways beneath the surface of the headline numbers. The S&P 500 is more concentrated today than arguably any point in its history, or at least rather close to its record. The top 10 of the 500 carry a combined weight of 32% of the market capitalization weighted index, with 5 of those companies carrying valuations north of a trillion. Even more impactful, the top 10 contributors to the S&P 500’s return this year represented 17.5% of the 26.3% gain, or about 2/3rds.
If you weren’t in the megacap names in the U.S., you didn’t enjoy nearly as pleasant of a year. This can be seen, magnified, by comparing the S&P 500 vs the smaller cap Russell 2000 (R2K). The gap between these lines widened in 2023.

The TSX, which generally is less diversified than the S&P 500, also suffered from narrow leadership. The index returned 12% for 2023 and a little over 7% of that gain came from the top 10 contributors. The good news is that top 10 were from a variety of different sectors, unlike the U.S. with a big technology name dominance. The bigger story in Canada was the dividend factor.
The Dow Jones Canada Select Dividend index and the broader TSX were lock-in step until bond yields began to rise in August. Higher yields weighed on dividend companies to a greater extent, leading to the divergence. The fall in yields during the past couple months of the year saw this spread narrow a little, but not much. The dividend factor was a drag on performance in 2023.

2-year round trip

We all naturally suffer from recency bias. This year, for all those with not enough U.S. equity market exposure (in the right part of the U.S. equity market, that is), it’s been a drag. Too many dividend-paying companies lagged in markets. Or how about bonds? Sure they were up in 2023, but down big in 2022. We don’t need to look back far to see a very different environment. In fact, 2023 turned out to be kind of a mirror of 2022.
Looking at index returns for U.S., Canadian, and International equities plus Canadian and U.S. bonds, the biggest losers in ’22 were often the biggest winners in ’23. The biggest drop in 2022 was U.S. equities, which took the top spot this year. Canadian equities suffered the least in ’22 and gained the least in ’23 (+12% is hardly something to cry about). Bonds, too, bounced back, albeit not totally offsetting the declines of 2022.
So, whether you were growth, balanced or conservative, you likely ended up at the same place after two years. The chart below is based on a range of asset allocations using index returns. Those numbers at the end of each line are the two-year annualized return for each… meh.

This is how markets work; sometimes returns are abundant, sometimes not so much. Wen should also point out one other way in which 2022 was rather unique. It was unique as bond yields were resetting or, dare we say, normalizing. This made bonds and equities move together. As you can see, whether conservatively allocated or more growth allocated, the 2022 path was rather similar. The good news is in 2023, markets behaved more normally. Growth did better than balanced, which did better than conservative, with greater volatility for growth vs conservative. Asset allocation works, it may have taken a break in 2022, but it is back.

Final Thoughts

When the global neutral balanced fund/ETF category returns 9.8% (prelim), it’s a good year. The good surprises, such as inflation coming down, central banks pausing and a resilient economy were bigger than the negative surprises. Maybe 9.8% will be enough to lure some of that cash hoard sitting in money market funds into risk assets? Hope not as the performance track record of investor flows is more of contrarian indicator.
2024 will likely be another challenging year. Past rate hikes are still making their way through the economy, sentiment has turned overly bullish and valuations are elevated. This does leave the lingering question, did the rally to finish 2023 rob returns from 2024? We will see.

— Craig Basinger is the Chief Market Strategist at Purpose Investments

Source: Charts are sourced to Bloomberg L.P. and Purpose Investments Inc.

The contents of this publication were researched, written and produced by Purpose Investments Inc. and are used by Echelon Wealth Partners Inc. for information purposes only.

This report is is authored by Craig Basinger, Chief Market Strategist, Purpose Investments Inc.

Wealth Sense

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Your tax return is more than a receipt. In the right hands, it is a diagnostic tool that reveals the strengths and risks of your wealth plan, as well as its tax deficiencies.

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Request a complimentary coverage review

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